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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Gcp Student Living Plc | LSE:DIGS | London | Ordinary Share | GB00B8460Z43 | ORD 1P |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 212.50 | 212.50 | 213.00 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From Apr 2019 to Apr 2024
TIDMDIGS
RNS Number : 1157L
GCP Student Living PLC
04 September 2019
GCP STUDENT LIVING PLC
LEI: 2138004J4ID66FK38H25
ANNUAL REPORT AND CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARED 30 JUNE 2019
GCP Student Living plc, (the "Company" or together with its subsidiaries, the "Group"), which was the first student accommodation REIT in the UK, today announces its results for the financial year ended 30 June 2019.
The full annual report and financial statements and the Notice of the annual general meeting can be accessed via the Company's website at www.gcpstudent.com or by contacting the Company Secretary by telephone on 01392 477500.
AT A GLANCE
Hot Features
Premium
2017 2018 2019
------------------------------------------ --------- --------- ---------
Value of property portfolio GBP634.6m GBP784.4m GBP921.6m
EPRA NAV(2,4) per ordinary share 139.08p 149.12p 165.52p
Dividends per ordinary share for the year 5.75p 5.95p 6.15p
Net operating margin(4) 78% 78% 79%
Share price per ordinary share 145.00p 147.00p 162.20p
Student rental growth(4) 3.9% 4.1% 3.5%
------------------------------------------ --------- --------- ---------
HIGHLIGHTS(3)
-- Annualised total shareholder return since IPO(4) of 12.9%, compared to the Company's target return of 8-10%.
-- Dividends of 6.15 pence per share in respect of the year. -- Total rental income for the year of GBP44.4 million. -- Equity raised of GBP43.1 million through the placing of ordinary shares. -- New debt facilities for an aggregate amount of up to GBP100 million with Wells Fargo.
-- Completion of the refurbishment of Scape Bloomsbury ahead of schedule for the 2018/19 academic year, providing 432 beds in London WC1.
-- Second forward-funded development asset, Circus Street, Brighton, will be completed for the 2019/20 academic year, providing a further 450 beds.
-- Commenced construction of Scape Brighton, which is expected to provide c.555 beds for the 2020/21 academic year.
-- The Company benefits from a future contractual arrangement to acquire Scape Canalside, a new-build asset located adjacent to QMUL, which the Company expects to acquire before the end of 2019.
-- EPRA NAV(2,4) (cum-income) per share of 165.52 pence and EPRA NAV (ex-income) per share of 163.96 pence at 30 June 2019.
-- High-quality portfolio of eleven assets with 4,116 beds located primarily in and around London, with a valuation of GBP921.6 million(5) at 30 June 2019.(5)
-- The Company's properties continue to benefit from the supply/demand imbalances for high-quality, modern student facilities, with the portfolio fully occupied and student rental growth(4) of 3.5% for the 2018/19 academic year.
-- Post year end the Company's operational portfolio achieved full occupancy with respect to the 2019/20 academic year, with student rental growth of 4.4%(4) year-on-year.
1. Share price at 28 June 2019. 2. EPRA NAV is equivalent to the NAV calculated under IFRS for the year.
3. The Company's financial statements are prepared in accordance with IFRS. The financial highlights above include performance measures based on EPRA best practice recommendations which are designed to enhance transparency and comparability across the European real estate sector. See glossary for definitions.
4. APM - see glossary for definitions and calculation methodology. 5. Includes lease incentives held as receivables.
Robert Peto, Chairman, commented:
"I am pleased to report on a sixth consecutive year of robust results for the Company.
The Company's focus on student residential accommodation assets in locations which benefit from supply and demand imbalances, including its core London market, has delivered total shareholders returns of 14.8% for the year. On a relative basis, the Company has substantially outperformed the FTSE EPRA NAREIT index of UK REITs, which declined by 6.0% over the same period. The Company's annualised total shareholder return since IPO(1) is 12.9%, exceeding the 8-10% target set at launch and more than double the return of the FTSE All-Share index over that period.
The Company's performance has been underpinned by strong operational drivers including full occupancy across the portfolio and year-on--year rental growth in excess of both inflation and the national average for student accommodation. This has enabled the Company to increase its annual dividend to 6.15 pence per share from 5.95 pence per share in the prior year. In addition, the Company's investments continue to benefit from yield compression arising from competitive market demand for student accommodation assets. This has been reflected in the upward valuation of the Company's portfolio and a concomitant rise in its NAV during the year."
Gravis Capital Management Limited +44 20 3405 8500 Nick Barker nick.barker@graviscapital.com Dion Di Miceli dion.dimiceli@graviscapital.com Stifel Nicolaus Europe Limited +44 20 7710 7600 Neil Winward neil.winward@stifel.com Mark Young mark.young@stifel.com Tom Yeadon tom.yeadon@stifel.com Buchanan / Quill +44 20 7466 5000 Helen Tarbet helent@buchanan.uk.com Henry Wilson henryw@buchanan.uk.com ---------------------------------- -------------------------------
About the Company
GCP Student Living plc was the first real estate investment trust in the UK to focus on student residential assets.
The Company seeks to provide shareholders with attractive total returns in the longer term through the potential for modest capital appreciation and regular, sustainable, long--term dividends with inflation--linked income characteristics.
It invests in properties located primarily in and around London where the Investment Manager believes the Company is likely to benefit from supply and demand imbalances for student residential accommodation and a growing number of international students.
The Company has a premium listing on the Official List of the FCA and trades on the Premium Segment of the Main Market of the London Stock Exchange. The Company had a market capitalisation of GBP670.9 million at 30 June 2019.
Investment Objectives and KPIs
The Company invests in UK student accommodation to meet the following key objectives:
TOTAL RETURN PORTFOLIO QUALITY DIVERSIFICATION
To provide shareholders To focus on high-quality, To invest and manage assets
with attractive total returns modern, private student with the objective of spreading
in the longer term. residential accommodation risk.
and teaching facilities
primarily in and around
London.
KEY PERFORMANCE INDICATORS
The Company has generated The Company's investment The Company's property portfolio
an annualised total shareholder portfolio has been fully comprises nine modern standing
return since IPO(1) of occupied since IPO, with student accommodation buildings
12.9%. average annualised rental and two development assets.
growth(1) of 3.8%.
6.15p Full 4,116
Dividends in respect of Occupancy(1) for 2018/19 Number of beds at 30 June
the year academic year 2019
14.8% 3.5% 11
Total shareholder return(1) Student rental growth(1) Number of assets at 30 June
for the year for the year 2019
-------------------------------- ----------------------------- ------------------------------------
Further information on Company performance can be found below.
1. APM - see glossary for definitions and calculation methodology.
Portfolio overview
At 30 June 2019, the Company's portfolio comprised eleven assets with c.4,100 beds, providing high-quality modern student accommodation.
Chairman's Statement
Introduction
On behalf of the Board, I am pleased to report on a sixth consecutive year of robust results for the Company. The focus on assets in locations which benefit from supply and demand imbalances for student accommodation, including the Company's core London market, has delivered a total shareholder return(1) of 14.8% for the year. On a relative basis, the Company has substantially outperformed the FTSE EPRA NAREIT index of UK REITs, which declined by 6.0% over the same period. The Company's annualised total shareholder return since IPO(1) is 12.9%, exceeding the 8-10% target set at launch and more than double the return of the FTSE All-Share index over that period.
The Company's performance has been underpinned by strong operational drivers including full occupancy across the portfolio and year-on--year rental growth in excess of both inflation and the national average for student accommodation. This has enabled the Company to increase its annual dividend to 6.15 pence per share from 5.95 pence per share in the prior year. In addition, the Company's investments continue to benefit from yield compression arising from competitive market demand for student accommodation assets. This has been reflected in the upward valuation of the Company's portfolio and a concomitant rise in its NAV during the year.
Investment activity
In May 2019, the Company acquired Scape Brighton, its second asset in Brighton. The property is a forward--funded development which, once construction is complete, will provide 555 beds and extensive communal areas for students with the expected delivery for the 2020/21 academic year. The Company benefits from licensing fees which will provide a 5.5% coupon per annum throughout the construction phase. Scape Brighton will add to the Company's presence in the Brighton market, with the construction of Circus Street, Brighton expected to be completed ahead of the 2019/20 academic year.
The Company also benefits from a future contractual arrangement to acquire Scape Canalside, a new-build 412 bed asset located adjacent to QMUL, and in the same locality as the Company's Scape Mile End2 asset. The property is expected to complete before the end of 2019.
1. APM - see glossary for definitions and calculation methodology.
2. Formerly Scape East.
Financial results
The Company has generated a strong set of results in both absolute and relative terms. The Company's investment portfolio delivered rental income of GBP44.4 million over the period, generating profit (including valuation gains) of GBP92.8 million (GBP18.9 million excluding valuation gains). Its EPRA NAV (cum-income) per share has increased by 11% during the year from 149.12 pence to 165.52 pence at 30 June 2019. This is against a backdrop of concerns over weakening valuations and cash flows for the UK commercial property sector.
Dividends
The Company has paid or declared dividends in respect of the year ended 30 June 2019 of 6.15 pence per share. The dividends were paid as 4.54 pence per share as PID and 1.61 pence per share as non-PID. The Company increased its dividend by 3.4% year--on-year.
The Board is pleased to report the substantial improvement to the Company's dividend cover, from 67% at 30 June 2018 to 85% at 30 June 2019 on an adjusting basis(1) . This has been primarily driven by Scape Bloomsbury opening to students in September 2018. On the basis of a fully operational portfolio, the Board expects the dividend to be fully covered.
Financing
During the financial year, the Company raised gross proceeds of GBP43.1 million by way of two non pre-emptive placings of new ordinary shares. In addition, the Company secured additional debt facilities with Wells Fargo for an aggregate amount of GBP100 million. These facilities comprise a three--year redrawable credit facility of up to GBP45 million and a development facility for an amount of up to GBP55 million, which is repayable on 21 December 2021 (with an option to extend by a further twelve months, at the Company's discretion subject to certain conditions being met), which will be drawn over time to fund the construction of Scape Brighton.
At 30 June 2019, the Group's available banking facilities totalled GBP335 million. At that date its blended cost of borrowing on its drawn debt was 2.94% with an average weighted maturity of c.7 years. The loan-to-value of the Group at 30 June 2019 was 26%.
Further details of the Company's borrowing facilities are set out in the notes to the financial statements below.
The Board
The Board is pleased to welcome David Hunter who was appointed as a non-executive Director of the Company on 1 May 2019. David brings substantial real estate experience with a long-standing track record of serving on the boards of publicly listed property investment companies, including REITs.
The Board recognises the importance of the Company operating within a framework of high standards of corporate governance including with regard to the matter of Directors' tenure. In 2018 the Board welcomed Gillian Day as a new non-executive Director, with Peter Dunscombe stepping down having served on the Board since the Company's IPO in 2013. Looking forward, it is my intention to retire from the Board following the annual general meeting to be held in late 2020, having served as Chairman since IPO. The Board intends to appoint David Hunter as Chairman of the Company at that time. The Board believes that the above steps will deliver new insight and perspectives whilst allowing an appropriate timeframe for the passing on of knowledge and experience.
Outlook
The Company provides shareholders with access to a portfolio of private student accommodation assets which continue to benefit from strong supply and demand imbalances resulting in full occupancy, rental growth and yield compression. The selective approach adopted by the Board and Investment Manager to asset selection and the locations in which the Company operates has demonstrably benefited shareholders through strong total shareholder returns since IPO.
Since the EU referendum in 2016, the Board has repeatedly noted that the impact of Brexit remains unknown and difficult to quantify. At the time of writing, there remains considerable uncertainty as to the possible outcomes of any form of Brexit. Notwithstanding this, the attraction of the UK and London in particular, for domestic and global students alike remains evident. The UK has some of the highest--ranking universities in the world, with three of the top ten institutions in 2019(2) . Furthermore, education remains a core sector for the UK economy, generating GBP95 billion and supporting nearly one million jobs.(3)
The Board and the Investment Manager continue to monitor global macroeconomic events as they relate to student numbers, including relations between the US, the UK and China which may impact the global mobility of Chinese students as well as their choice of destination.
With the number of international students in the UK continuing to rise (a substantial number of whom choose to study in and around London) the Board remains confident that the Company will continue to deliver stable NAV performance.
Robert Peto
Chairman
3 September 2019
1. Refer to note 3 to the financial statements. 2. Times Higher Education World University rankings 2019. 3. Universities UK 'The economic impact of universities' 2014-15'.
STRATEGIC REPORT
Strategic overview
The Company's investment objective is to provide shareholders with attractive total returns in the longer term.
12.9%
Annualised total shareholder return since IPO
6.15p
Dividend in respect of the year
Business model
The Company's investment strategy is set out in its investment objective and policy below. It should be considered in conjunction with the Chairman's statement and the strategic report which provide an in-depth review of the Company's performance and future strategy.
Further information on the business model is set out below.
Investment objective
The Company's investment objective is to provide shareholders with attractive total shareholder returns in the longer term through the potential for modest capital appreciation and regular, sustainable, long-term dividends with inflation--linked characteristics.
Investment policy
The Company intends to meet its investment objective through owning, leasing and licensing student residential accommodation and teaching facilities to a diversified portfolio of direct let tenants and HEIs. The Company will mostly invest in modern, purpose-built, private student residential accommodation and teaching facilities located primarily in and around London, where the Investment Manager believes the Company is likely to benefit from supply and demand imbalances for student residential accommodation. The Company may also invest in development and forward--funded projects which are consistent with the objective of providing shareholders with regular, sustainable dividends and have received planning permission for student accommodation, subject to the Board being satisfied as to the reputation, track record and financial strength of the relevant developer and building contractor.
Rental income will predominantly derive from a mix of contractual arrangements including direct leases and/or licences to students ("direct let agreements"), leases and/or licences to students guaranteed by HEIs and/or leases and/or licences directly to HEIs. The Company may enter into soft nominations agreements (pari passu marketing arrangements with HEIs to place their students in private accommodation) or hard nominations agreements (longer-term marketing arrangements with HEIs of between two and 30 years in duration). Where the Company invests in properties which contain commercial or retail space, it may derive further income through leases of such space. Where the Company invests in development and forward--funded projects, development costs will typically be paid in stages through construction, with a bullet payment at completion.
The Company intends to focus primarily on accommodation and teaching facilities for students studying at Russell Group universities and other leading academic institutions, regional universities with satellite teaching facilities in and around London and specialist colleges.
The Company may invest directly or through holdings in special purpose vehicles and its assets may be held through limited partnerships, trusts or other vehicles with third party co-investors.
Borrowing and gearing policy
The Company may seek to use gearing to enhance returns over the long term. The level of gearing will be governed by careful consideration of the cost of borrowing and the Company may seek to use hedging or otherwise seek to mitigate the risk of interest rate increases. Gearing, represented by borrowings as a percentage of gross assets, will not exceed 55% at the time of investment. It is the Directors' current intention to target gearing of less than 30% of gross assets in the long term and to comply with the REIT condition relating to the ratio between the Group's 'property profits' and 'property finance costs'.
Use of derivatives
The Company may invest through derivatives for efficient portfolio management. In particular, the Company may engage in interest rate hedging or otherwise seek to mitigate the risk of interest rate increases as part of the Company's efficient portfolio management.
Investment restrictions
The Company invests and manages its assets with the objective of spreading risk through the following restrictions:
-- the Company will derive its rental income from a portfolio of not less than 500 studios;
-- the value of any newly acquired single property will be limited to 25% of gross assets, calculated as at the time of investment;
-- the Company mostly invests in modern, purpose-built, private student residential accommodation and teaching facilities located primarily in and around London. Accordingly, no less than 75% of the Group's property portfolio will comprise assets which are located in and around London, calculated as at the time of investment;
-- at least 90% by value of the properties directly or indirectly owned by the Company shall be in the form of freehold or long leasehold (over 60 years remaining at the time of acquisition) properties or the equivalent;
-- the Company will not: (i) invest more than 20% of its gross assets in undeveloped land; and
(ii) commit more than 15% of its gross assets to forward-funded projects in respect of such undeveloped land, such commitment to be determined on the basis of the net construction funding requirements (and associated advisory costs) of such projects at the time of commitment up to their completion, in both cases as measured at the time of investment;
-- the Company will not invest in completed assets which are not income generative at, or shortly following, the time of acquisition; and
-- the Company will not invest in closed-ended investment companies.
The Directors currently intend, at all times, to conduct the affairs of the Company so as to enable it to qualify as the principal company of a REIT group for the purposes of Part 12 of the CTA (and the regulations made thereunder).
In the event of a breach of the investment guidelines and restrictions set out above, the Investment Manager shall inform the Directors upon becoming aware of the same and, if the Directors consider the breach to be material, notification will be made to a Regulatory Information Service.
No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.
Business and status of the Company
The Company is registered as a public limited company and is an investment company within the terms of section 833 of the Companies Act 2006. The Company is a REIT for the purposes of Part 12 of the CTA. The Company will be treated as a REIT so long as it continues to meet the REIT conditions in relation to any accounting period.
The Company was incorporated on 26 February 2013. Its shares trade on the Premium Segment of the Main Market of the London Stock Exchange.
The Company's performance, along with the important events that have occurred during the period under review, the key factors influencing the financial statements and the principal risks and uncertainties for the financial period are set out in the Chairman's statement and the strategic report.
Business Model
The Company's primary objective is to provide shareholders with attractive total returns in the longer term through the potential for modest capital appreciation and regular, sustainable, long--term dividends.
INDEPENT BOARD STRONG GOVERNANCE
Read more below
THE THREE FUNDAMENTALS CORE ACTIVITIES OUTPUTS
------------------------------------------------------- ------------------------ -----------------------------------------------------------
WHERE THE ASSETS ARE LOCATED PROPERTY INVESTMENT FINANCIAL
The Company invests in
* Primary focus in and around London modern, purpose-built, * The Company invests in assets primarily in and around
private student London which can deliver long-term sustainable rental
residential growth and value. The Company has generated
* Proximity to HEI and/or major transport hub accommodation and annualised total shareholder returns of 12.9% since
teaching IPO exceeding the target of 8-10%. The portfolio
facilities located continues to deliver strong operational performance,
* High supply-side barriers primarily having achieved full occupancy for the 2018/19
in and around London, academic year and generating rental income of GBP44.4
where million.
the Investment Manager
believes the Company is
likely to benefit from
supply and demand
imbalances
for student residential
accommodation.
WHAT THE COMPANY BUYS ASSET MANAGEMENT PHYSICAL
The Company has put the
* Intelligent design to optimise long--term returns quality, design, * The Company's properties focus on intelligent design
experience with comfort and wellbeing at their core. Making the
and performance of its most efficient use of space in the rooms frees up
* Large-scale assets benefiting from operating assets at the heart of space in the building for cinemas, gyms, shared
efficiencies its operational kitchens and other spaces that build communities and
strategy. lifelong connections. In addition, by investing in
This is achieved through areas that are undergoing regeneration, such as in
* Modern purpose-built accommodation the Company's choice of Wembley, and Brighton, the Company is helping to
Asset and Facilities improve the local area and reduce pressure on housing
Managers stock.
and the Group's
employees.
HOW THE COMPANY OPERATES FINANCIAL MANAGEMENT SOCIAL
The Company uses gearing
* High-specification facilities to enhance returns over * The Company's buildings provide the best possible
the long term. The level spaces for residents to nurture, grow and build
of gearing is governed relationships. Students and graduates also receive
* Hotel-level service by careful consideration help to meet potential employers and learn more about
of the cost of the world of work; initiatives include seminars from
borrowing. specialists from all fields as well as providing
* Competitive pricing The Company may also use classes to improve skills such as languages, cookery,
hedging or otherwise health and fitness.
seek
to mitigate the risk of
interest rate increases.
REINVESTMENT/LIFECYCLING
The Company has a
dedicated
lifecycle reserve held
for future capital
expenditure
to ensure the properties
are maintained at the
level
needed to sustain the
current
rents and any assumed
future
rental growth.
------------------------------------------------------- ------------------------ -----------------------------------------------------------
INVESTMENT MANAGER'S REPORT
The UK continues to attract substantial numbers of international students, with acceptances to full-time courses for the 2018/19 academic year up 4.4% year-on-year.
The UK student accommodation market
The UK remains a global leader in the provision of higher education, with some of the highest ranking universities in the world, including three in the top ten in 2019(1) , making it attractive to both domestic and international students, for whom the UK is the second most popular destination for further education after the USA.
Student numbers supportive of occupancy and growth
UCAS data for the 2018/19 academic year shows total acceptances to full-time education in the UK remains broadly consistent with prior years, with the number of students applying to higher education continuing to substantially exceed the number of places available, resulting in nearly one in four of all applicants unable to secure a place in higher education, equating to c.162,000 applicants.
The UK continues to attract substantial numbers of international students, with acceptances to full-time courses for the 2018/19 academic year up 4.4% year-on-year. The total number of EU and non-EU international students accepted to courses in the UK is at the highest level ever seen.
Non-EU student numbers have increased by 4.9% year-on-year, with acceptances of EU students increasing 3.8% and to levels above those seen prior to the EU referendum in 2016. Initial data published by UCAS indicates that applications by EU students and non-EU students for the 2019/20 year have increased by 1.0% and 7.9% respectively on the previous year.
The number of acceptances for UK students has shown a modest year-on-year decline of 0.8% for the 2018/19 academic year. This decrease has been widely attributed to the decline in the population of 18 year-olds in the UK, which is forecast to reverse after 2020(2) . This should be considered in the wider context of entry rates for higher education which represent the proportion of the population who are placed in higher education and which, for UK 18 year-olds, has increased by 0.4 percentage points to 33% in 2018/19.(3)
Whilst total acceptances to full-time higher education in the UK for the 2018/19 academic year remain broadly consistent with prior years, a combination of the cost of tuition and the removal of student number controls continues to benefit the top ranked universities most, suggesting a flight to quality as students increasingly view their choice of university in terms of expected future earnings.
1. Times Higher Education World University Rankings 2019.
2. The Office of National Statistics.
3. UCAS end of cycle report 2018.
Demand for full-time higher education is not evenly distributed across the UK, with certain locations attracting greater demand for places from domestic and international students alike. Demand for courses in London remains strong. London is home to 23 universities, with more universities ranked in the top 40 by The Times Higher Education World University Rankings than any other city in the world. Approximately one-third of the 2.3 million students in the UK study in London and the south east of England(1) .
International students favour London as a destination for higher education; a quarter of all international students in the UK choose to study in London. With 87% of the Company's portfolio located in and around London and 77% of its tenants being international students, current market dynamics are strongly supportive of the Company's investment objective and underpin its continued ability to deliver fully occupied assets with long-term rental growth prospects. These demand dynamics are also in play in the Brighton market, which is home to both the University of Sussex (a UK top 20 university) and the University of Brighton, with in aggregate c.32,000 students, including c.8,000 international students. The city is also home to two of the largest English language foundation course providers in the UK.
Strong supply-side barriers
The supply of private student accommodation varies substantially across the UK, with increasing divergence of investment returns between those cities with an undersupply of student housing resulting from restrictive planning and/or limited land availability, and those with less restrictive planning regulations.
The Investment Manager targets markets which suffer from a structural undersupply of private student residential accommodation. Severe undersupply in London, driven by high land values and a challenging planning environment, means that it remains more restricted than the UK average in terms of the number of beds per student. Brighton, like London, also remains severely undersupplied, primarily due to a restrictive planning environment which means that currently only c.700 beds have been consented for private development in Brighton, excluding the Company's Scape Brighton and Circus Street properties.
Based on current provision rates, London is undersupplied by c.35,000 beds(2) . Further, modern student accommodation is in short supply, with an estimated two-thirds of existing university beds in London being more than 17 years old.
The extent of undersupply is likely to be compounded by the slowing pace of the delivery of new student accommodation developments in London. The number of beds delivered in London in 2017/18 represented the lowest rate of growth for more than a decade. In addition, the development pipeline for new schemes remains constrained, with the development pipeline having decreased by 41% in the last three years and increasingly focused on developments outside central London, as illustrated by the decrease in the percentage of pipeline developments located in London Zone 1 from 36% in 2014/15 to only 12% in 2017/18.
The beneficial impact of these supply-side barriers on the Company's portfolio, coupled with strong demand for accommodation in its assets, is reflected by the valuation increases and rental growth achieved since its IPO in 2013.
Transactional activity
Investment volumes exceeded GBP3.2 billion in 2018. At the date of this report, the Investment Manager estimates that there is a further c.GBP2 billion of stock on the market. Overseas and institutional buyers continue to dominate the market for UK student residential assets.
Notable transactions in 2018/19 include the acquisition by Allianz of a GBP350 million holding in the GBP1.5 billion Chapter portfolio, comprising c.5,100 beds in and around London, at an estimated yield of c.4.00% and the acquisition by Chapter of a c.460-bed asset in Shoreditch at an estimated yield of 3.75%.
Such investment activity, combined with the anticipated impact of the new London Plan (see the Q&A section in the full Annual Report), continues to drive yield compression across the London market. This is reflected in the increased valuation on a like-for-like basis of the Company's portfolio during the year under review.
1. HESA.
2. JLL London Student Housing.
Portfolio performance update
The key drivers of the Company's returns are based on the three fundamentals shown above, which form the basis of how the Investment Manager seeks to add value over the long term. The Company's portfolio continues to perform in line with the Investment Manager's expectations. The operational properties are fully occupied with respect to the 2018/19 academic year. The portfolio generated rental income of GBP44.4 million for the year to 30 June 2019 and average rental growth of 3.5% year-on-year.
Post year end, the operational portfolio is fully occupied for the 2019/20 academic year, with year-on-year rent at growth of 4.4%.
The Company is able to achieve strong rental growth through its focus on markets benefiting from strong supply and demand imbalances and the location of its assets, all of which are within a ten-minute walk of an HEI or major transport links. In the year under review, the Company has achieved strong NAV growth driven by a like--for--like portfolio valuation uplift of 10.3%. The external market valuation of the portfolio was GBP921.6 million at 30 June 2019. The valuation uplift for the year has been driven by rental growth, full occupancy and yield compression across the portfolio, with notable valuation uplifts on Scape Bloomsbury of GBP18.7 million, Scape Shoreditch of GBP15.9 million and Scape Mile End(1) of GBP15.5 million.
The blended net initial yield of the Company's operational portfolio at 30 June 2019 was 4.54% (30 June 2018: 5.04%). London continues to attract the attention of institutional and sovereign wealth fund investors, with competitive market activity for private student accommodation assets further driving yield compression, which has positively impacted the valuation of the Company's assets. As detailed above, 87% of the Company's portfolio by value is located in and around London. During the year under review, the comprehensive refurbishment of Scape Bloomsbury was completed ahead of schedule, with the property open to students for the beginning of the 2018/19 academic year, providing 432 beds in London WC1.
The planning consents for this property permit occupation by non-students outside of the academic year, which the Investment Manager believes will enable the Company to benefit from additional revenue given the location of this asset and demand for hotel-like accommodation in London over the summer months.
The forward-funded construction of Circus Street, Brighton continues in line with the Investment Manager's expectations and is expected to open for the 2019/20 academic year. Circus Street will provide 450 beds in addition to c.30,000 sq ft of commercial office space, which is expected to complete in Q2 2020. The student accommodation will be let on a 21-year lease, with annual uplifts of RPI plus 50 basis points, capped at 5% and floored at 2%, to a subsidiary guaranteed by Kaplan Inc, a global education provider.
Outlook
The Company provides shareholders with a property portfolio which continues to benefit from supply and demand imbalances for student residential accommodation in its core markets. The attraction of these core markets for owners of private student residential accommodation remains evident, as demonstrated by the occupancy levels, rental growth and yield compression seen across the Company's portfolio.
The Investment Manager believes investment demand is increasingly selective, with the weight of institutional capital focusing on the supply of 'core' locations with attractive supply and demand characteristics. This is illustrated by the substantial yield differential between private student residential accommodation assets in and around London and in super prime regional locations such as Brighton as compared to those located in secondary and tertiary regional locations. It is the Investment Manager's belief that this trend is likely to continue, particularly in those locations where local government policy may further limit the development in future of private student accommodation, which is further discussed under the Q&A section in the full Annual Report.
The combination of increasing demand for higher education in the locations in which the Group's assets are located and ongoing supply constraints should continue to support occupancy, rental growth and property valuations across the Company's portfolio going forward.
1. Formerly Scape East.
REVIEW OF THE FINANCIAL YEAR
The Company generated rental income of GBP44.4 million, paid or declared dividends of 6.15 pence per share and delivered a total shareholder return(1) of 14.8%.
Rental income
The Company achieved student rental growth(1) of 3.5% on a like-for-like basis for the 2018/19 academic year, generating rental income for the year ended 30 June 2019 of GBP44.4 million from the Company's property portfolio, driven by full occupancy throughout the year. Rental income has increased year-on-year principally due to the opening of Scape Bloomsbury in September 2018 which generates gross rental income of c.GBP9 million per annum.
Property operating costs
Property expenditure of GBP9.4 million was incurred during the year, which is in line with expectations. The Company's net operating margin has remained broadly stable at c.79% with the ongoing efficient management of costs by the Company's Asset and Facilities Managers.
Administration expenses
Total administration expenses of GBP8.8 million comprise fund running costs, including the Investment Manager's fee, Asset and Facilities Managers' fees and other service provider costs in the period. Administration costs are carefully monitored and controlled by the Investment Manager and the Board to ensure that the Company receives good value for services received.
Net financing costs
Net finance costs of GBP7.3 million in the year principally comprise loan interest associated with the Company's financing arrangements. These costs have increased year-on-year due to the Company entering into and drawing on a GBP45 million redrawable credit facility (refer to note 17), in line with expectations.
Profitability
Profit before tax and fair value gains on investment properties of GBP18.9 million was generated in the period.
Total fair value gains on investment properties through revaluation of the Company's investment portfolio were GBP73.9 million for the year, positively impacting operating profit and generating EPS of 22.9 pence. The adjusted EPS(1) for the period was 5.23 pence (excluding fair value gains on investment properties and adjusting for licence fees receivable on forward--funded developments).(2)
Further information on property valuations is given in note 13 to the financial statements.
1. APM - see glossary for definitions and calculation methodology. 2. Refer to note 3 for detailed calculation.
Financial performance
Condensed profit and loss
For the For the
year ended year ended
30 June 30 June 2018
2019
Notes GBP'000 GBP'000
----------------------------------------------------------------------------------- ------ ---------- ------------
Rental income 4 44,410 35,790
Property operating expenses 5 (9,364) (7,946)
----------------------------------------------------------------------------------- ------ ---------- ------------
Gross profit (net operating income) 35,046 27,844
----------------------------------------------------------------------------------- ------ ---------- ------------
Net operating margin 79% 78%
Administration expenses 5 (8,808) (7,434)
Net finance costs 15, 16 (7,317) (6,917)
----------------------------------------------------------------------------------- ------ ---------- ------------
Profit before tax and fair value gains on investment properties (realised profits) 18,921 13,493
----------------------------------------------------------------------------------- ------ ---------- ------------
Fair value gains on investment properties 10 73,865 47,565
----------------------------------------------------------------------------------- ------ ---------- ------------
Profit before tax for the year 92,786 61,058
----------------------------------------------------------------------------------- ------ ---------- ------------
Ongoing charges
The Company's ongoing charges ratio(1) was 1.31% for the year ended 30 June 2019, calculated in line with the AIC methodology, excluding direct property costs.
Dividends
In order to maintain its REIT status, the Company is required to meet a minimum distribution test for each accounting period for which it is a REIT. This test requires the Company to distribute at least 90% of the property rental profits from its property rental business for each accounting period, as adjusted for tax purposes.
In respect of the financial year ended 30 June 2019, the Company paid or declared dividends of 6.15 pence per ordinary share. The dividends were paid or declared as 4.54 pence per ordinary share as a REIT PID in respect of the Group's tax exempt property rental business and 1.61 pence per ordinary share as an ordinary UK dividend. The Company fulfilled all of its obligations under the UK REIT regime and was in full compliance with the REIT requirements at 30 June 2019 and at the date of this report.
Dividend cover
The substantial improvement to the Company's dividend cover this year has been driven predominantly by the opening of Scape Bloomsbury to students in September 2018. The total dividend of 6.15 pence for the year was 85% covered by adjusted EPS(1) of 5.23 pence.(2)
The Company targets a fully covered dividend over the medium term. On the basis of a fully operational portfolio, the Board expects the dividend to be fully covered.
Capital raises
The Company completed two equity capital raises in September 2018 and May 2019, raising gross proceeds of GBP43.1 million. The issue prices were 149.50 pence and 162.50 pence respectively. Shares issued in the September 2018 capital raise were at a 3.10 pence discount to the closing price per ordinary share on 7 September 2018 of 152.60 pence and a 1.89 pence premium to the prevailing EPRA NAV (ex-income). Shares issued in the May 2019 issue were at a 2.47 pence premium to the Company's prevailing EPRA NAV (ex-income) of 160.03 pence per ordinary share.
Cash flow generation
The Company held cash and cash equivalents of GBP15.5 million at the end of the financial year. A total of GBP25.6 million of operating cash flows were generated in relation to the Company's student accommodation portfolio. Total equity capital raised in the year amounted to GBP43.1 million, which was used in part to fund the construction of Circus Street, Brighton and Scape Brighton. The remaining cash outflows during the year relate to the cost of servicing the Company's debt facility in addition to payment of dividends, resulting in a net decrease in cash and cash equivalents at the year end, in line with expectations.
Debt financing
The Company's loan facilities total GBP335 million (of which GBP252.2 million was drawn at 30 June 2019). These facilities include fully drawn fixed interest rate term facilities with PGIM for an aggregate amount of GBP235 million, which are secured against certain of the Group's operational assets, and have an average weighted maturity of c.7 years. In addition, the Group has GBP100 million of floating rate borrowing facilities with Wells Fargo (of which GBP17.2 million was drawn as at 30 June 2019) comprising a development facility of GBP55 million and a GBP45 million redrawable credit facility. The loan--to--value of the Group at the year-end date was approximately 26%.
1. APM - see glossary for definitions and calculation methodology.
2. Refer to note 3.
Asset performance
The Company experienced 3.5% student rental growth(1) for the 2018/19 academic year and benefited from yield compression. The valuation of the Company's property portfolio has increased by GBP191.1 million or c.26% since the Company's IPO or its acquisition of assets. The portfolio was fully occupied for the 2018/19 academic year.
Lifecycle reserve
The Company's lifecycle cash reserves were GBP1.5 million at the year end which is held within cash and cash equivalents. The reserves are held for future lifecycle expenditure to ensure the properties are maintained at the level needed to sustain the current rents and any assumed future rental growth.
Net assets
Net assets attributable to equity holders at 30 June 2019 were GBP684.7 million, up from GBP574.2 million at 30 June 2018. The increase in net assets since the prior year end is primarily driven by the increase in the valuation of the property portfolio. At 30 June 2019, there were 413.7 million shares in issue, giving an EPRA NAV (cum-income) per ordinary share of 165.52 pence.
NAV and share price return
The Company's ordinary shares have traded at an average premium to EPRA NAV (ex-income)1 of 4.1% since IPO, with an average discount over the financial year of 0.4%.
EPRA NAV (cum income)(1) has increased from 149.12 pence as at 30 June 2018 to 165.52 pence per share as at 30 June 2019, an 11% increase year-on-year. Dividends of 6.15 pence per ordinary share were paid, or declared, to shareholders. At the Group level, the annualised total shareholder return since IPO(1) was 12.9%, compared to the annualised target return of 8 to 10%.
Financial performance
Condensed balance sheet
As at As at
30 June 2019 30 June 2018
Notes GBP'000 GBP'000
----------------------------------------------------- ----- ------------ ------------
Assets
Investment property 10 919,203(2) 784,424
Trade and other receivables, retentions and deposits 17,550 11,961
Cash and cash equivalents 23 15,509 29,213
----------------------------------------------------- ----- ------------ ------------
Total assets 952,262 825,598
----------------------------------------------------- ----- ------------ ------------
Liabilities
Trade and other payables, retentions and deposits (6,195) (8,491)
Deferred income 25 (12,293) (10,126)
Interest-bearing loans and borrowings 17 (249,111) (232,771)
----------------------------------------------------- ----- ------------ ------------
Total liabilities (267,599) (251,388)
----------------------------------------------------- ----- ------------ ------------
Net assets 684,663 574,210
----------------------------------------------------- ----- ------------ ------------
Number of shares 413,653,630 385,064,556
EPRA NAV per share (cum-income)(1) 3 165.52p 149.12p
EPRA NAV per share (ex-income)(1) 163.96p 147.61p
----------------------------------------------------- ----- ------------ ------------
1. APM - see glossary for definitions and calculation methodology.
2. Excludes lease incentives held as receivables.
PROPERTY PORTFOLIO
The Company's property portfolio consists of high-quality, modern student accommodation, located primarily in and around London.
11
Number of assets at 30 June 2019
87%
Percentage of portfolio in and around London
At 30 June 2019, the Company's portfolio comprised eleven high--quality, modern student accommodation buildings, of which 87% of the total capital value was located in and around London.
Property Number of Date of acquisition Book cost Valuation at 30 NIY
beds June 2018
Current
Scape Mile End(1) 588 May 2013 GBP94.2m GBP154.5m 4.58%
Scape Wembley 578 Jun 2016 GBP78.1m GBP97.3m 4.85%
Scape Brighton 555 Jul 2018 GBP42.1m GBP42.1m N/A
Scape Shoreditch 541 Sep 2015 GBP166.8m GBP208.9m 4.33%
Circus Street 450 Aug 2017 GBP43.1m GBP55.5m N/A
Scape Bloomsbury 432 Apr 2017 GBP167.3m GBP189.6m 4.10%
Scape Greenwich 280 May 2014 GBP40.4m GBP58.1m 4.68%
The Pad 220 Dec 2013 GBP28.6m GBP33.9m 5.80%
Podium 178 Dec 2017 GBP29.6m GBP31.5m 5.65%
Water Lane Apartments 153 Feb 2016 GBP18.8m GBP21.9m 5.35%
Scape Guildford(2) 141 Sep 2015 GBP19.1m GBP28.4m 5.15%
---------------------- --------- ------------------- --------- --------------- -----
Number of beds 4,116
Valuation of property GBP921.6m(3)
portfolio
Blended net initial yield 4.54%
1. Formerly Scape East.
2. Formerly Scape Surrey.
3. Includes lease incentives held as receivables.
FEATURED ASSETS
SCAPE SHOREDITCH
45 Brunswick Place,
London N1 6DX
541
Number of beds
Scape Shoreditch is situated in a prime London location in Shoreditch. The property was acquired by the Company in September 2015.
Built over eleven floors, the building comprises 541 studio bedrooms and c.10,000 sq ft of communal areas. The rooms are fully equipped for city living, with integrated storage and work space, fitted kitchenette and dining area and an en suite shower room. Located in the building are a gym, study lounge, games room, cinema and large communal kitchen. On the upper levels are landscaped rooftop gardens with four pavilions, including a barbecue terrace, offering spectacular views over London and down through the central glass roof into the commercial space.
Since acquisition in September 2015, the Group has benefited from a valuation uplift of GBP42.1 million. The property generates c.GBP10 million of gross revenue per annum, through a combination of direct let tenancies and commercial income. The commercial lease at the property generates c.25% of total gross annual revenues for Scape Shoreditch.
At 30 June 2019, Scape Shoreditch was occupied by students from 46 HEIs and of 66 different nationalities, with c.86% of students coming from outside the UK.
ASSET LOCATION
Scape Shoreditch offers students a complete London living solution in one of London's most fashionable districts, Tech City, London's technology and media district. The property is located two minutes from Old Street station, within a 15-minute walk of City, University of London (c.18,000 students) and CASS Business School, with LSE, UCL and QMUL all located within a short journey from the location of the property.
COMMERCIAL SPACE
The commercial facilities are let to WeWork on a 15-year fully repairing and insuring lease. WeWork is a global provider of shared workspaces. The typical member is an entrepreneur who is working on an early-stage idea, predominantly in the creative industries. Scape partners with WeWork to give students a platform to meet potential employers, sharpen their skills and gain valuable experience. Students also gain exclusive access to an ever--growing list of internships available at start-ups.
SCAPE BLOOMSBURY
19-29 Woburn Place,
London WC1H 0AQ
432
Number of beds
In April 2017, the Company acquired Scape Bloomsbury, a private student accommodation asset located at a prime central London position in Bloomsbury, WC1.
The property is a 110,000 sq ft ten-storey building situated on half an acre of freehold land which was previously used as a government office in the mid--20th century, before being converted into student accommodation in 2008 by Unite Students.
Following acquisition in April 2017, the Group reconfigured and refurbished the property to the high specification typical of the Group's existing standing assets and the Scape brand. The refurbishment involved diversifying the mix of accommodation units, offering modern studios and single and double occupancy apartment style accommodation, to optimise rental growth and occupancy levels. The refurbishment also included the construction of a gym, cinema room, communal kitchens and study rooms.
The refurbished property opened to students for the 2018/19 academic year, providing 432 beds in London WC1. The asset is currently fully occupied generating c.GBP10 million in gross revenue per annum, through a combination of long--term contracts and short--term lets. The acquisition of the property has been both earnings and dividend cover accretive to the Company, generating a valuation uplift of GBP9.9 million at completion of the refurbishment in August 2018 and GBP18.7 million for the year to 30 June 2019.
At 30 June 2019, Scape Bloomsbury was occupied by students from 28 HEIs and of 55 different nationalities, with c.88% of students coming from outside the UK.
ASSET LOCATION
Scape Bloomsbury is one of the most prime private student accommodation schemes in London, located in Bloomsbury within a few hundred metres of some of the world's leading universities. The property is within short walking distance of UCL, SOAS and two teaching hospitals, UCH and GOSH. LSE, KCL, City, University of London and UAL are also within walking distance, bringing the total number of students in close proximity to Scape Bloomsbury to c.100,000.
SHORT TERM LETS
The property has the benefit of an approved 'C2 Residential Institutions' planning consent outside of the academic year, enabling the Asset and Facilities Manager to let the property under short-term lets to non-students who would traditionally take hotel, hostel or serviced accommodation in a location heavily used by tourists during the summer months.
SCAPE BRIGHTON
Lewes Road,
Brighton BN2 4GL
555
Number of beds
Scape Brighton was acquired by the Company in May 2019, under a contract to acquire and forward fund its construction.
Scape Brighton is a large-scale development with planning consent for the construction of purpose--built private student accommodation located on the primary campus of the University of Brighton and less than ten minutes from the University of Sussex.
Once constructed it will provide c.555 beds and extensive communal areas with c.1,500 sq ft of retail space. It is currently expected that Scape Brighton will be operational for the 2020/21 academic year. The Company will benefit from licensing fees which will provide a c.5.5% per annum coupon through the construction phase. It is currently expected that the construction of Scape Brighton will continue to be funded through the Company's development facility.
Brighton, like London, is structurally undersupplied with c.7,800 beds available to students, of which only c.500 beds are in direct let, private purpose--built student accommodation. Looking forward, restrictive planning on further private student accommodation developments means that currently only c.700 beds have been consented for private development, excluding Circus Street and Scape Brighton. These supply and demand dynamics make Brighton a highly attractive market which the Investment Manager believes shares many of the attractions of the London market.
CIRCUS STREET
5 Market Square, Circus Street, Brighton BN2 9AS
450
Number of beds
Circus Street is a private student residence located in Brighton. The scheme was forward funded by the Company and is due to complete for the 2019/20 academic year.
Circus Street is the Company's second forward--funded development asset, following on from the successful completion of construction of Scape Wembley. The property provides 450 beds and 30,000 sq ft of commercial office space in a prime Brighton location ahead of, and during, the 2019/20 academic year respectively.
The student accommodation is contracted on a 21-year lease, with annual uplifts of RPI plus 50 basis points, capped at 5% and floored at 2%, to a subsidiary guaranteed by Kaplan Inc, a global education provider. The Company has benefited from a licensing fee providing a 5.5% coupon on drawn funding through the construction phase.
ASSET LOCATIONS
The city of Brighton is home to both the University of Sussex (a UK top 30 university) and the University of Brighton, with in aggregate c.32,000 students, including c.8,000 international students. The city is also home to two of the largest English language foundation course providers. The buildings are situated in prime locations. Scape Brighton is located on the primary campus of the University of Brighton. Circus Street is located in the heart of Brighton city centre, within short walking distance of its iconic pier, shopping district and transport links.
THE ASSET AND FACILITIES MANAGERS
The living experience forms a mainstay of each student's university life. The Company has put the quality, design, experience and performance of its assets at the heart of its operational strategy. This is achieved through the Company's investment selection and its choice of Asset and Facilities Managers.
Collegiate
The Asset and Facilities Manager for Water Lane Apartments is Collegiate. Collegiate's management philosophy is based on enhancing the university experience for their residents. It specialises in managing high-specification, design-led schemes with a focus on superior service quality. Collegiate's team has experience in managing a range of diverse student accommodation assets, in over 25 cities, and across over 40 student blocks, serving some 30,000 student tenants.
Scape
Scape is the Asset and Facilities Manager for the Company's 'Scape' branded assets, in addition to The Pad and Podium. The vision of the Scape brand was to create a new kind of student accommodation; one that was affordable but with modern design.
In 2012, the first Scape building, Scape Mile End(1) , was launched in London. Today, Scape designs, builds and operates buildings for students across the globe, with over 18,000 beds in operation or under development.
The Company has been highly successful in securing new, modern purpose-built properties through its relationship with Scape.
'We know that the better we take care of students today, the better they will take care of tomorrow; their wellbeing remains the top priority throughout all of our planning, the focal point of our internal training and the driving force behind all our teams'.
Tom Devaney,
Global COO
1. Formerly Scape East.
Focus on service and student wellbeing
Personal touches underpin Scape's student welfare initiatives such as offering pre--arrival familiarisation and 24 hour support, to personalised wellbeing and health and lifestyle events. Trained staff provide consistent student welfare that is at the forefront, driving both individual and collective responsibility across the business.
Exceptional events to create opportunities
Scape believes that careers start before degrees finish. By creating events that enrich residents' experiences, skills are developed that open doors for life after university. Their Future Shapers series invites students to pitch their ideas to a panel of entrepreneurial judges, with exclusive partnerships with WeWork and Inspiring Interns & Graduates, read more below.
Award-winning provider of student living
Every Scape operated building is expertly shaped around the students who call it home. From the design and layout to the materials and finish, the rooms are designed to give students everything they need in the smartest way possible. By making the most efficient use of space in the rooms, it frees up space for the cinemas, gyms, shared kitchens and other spaces that build communities and lifelong connections.
ENVIRONMENTAL, SOCIAL, GOVERNANCE
The Company aims to operate a fully sustainable business model with a low carbon footprint for all its stakeholders.
Responsible investment
The Investment Manager is a signatory to the UN Principles for Responsible Investment ("UNPRI"). The UNPRI, established in 2006, is a global collaborative network of investors working together to put the six Principles for Responsible Investment into practice. The principles are a voluntary and aspirational set of investment principles for incorporating ESG issues into investment practice. More information can be found on the UNPRI website: www.unpri.org.
The Investment Manager has established a dedicated sustainability committee to assess ESG issues and integrate sustainability across its business, including the embedding of responsible investing policies in its investment management processes.
1000 Companies to Inspire Britain
The Company was listed in the London Stock Exchange Group's 1000 Companies to Inspire Britain 2019 publication, a celebration of some of the fastest--growing and most dynamic small and medium--sized enterprises ("SMEs") in the UK. The report tells a fantastic story about the ability of British businesses to thrive in the face of a challenging environment and celebrates some of the most exciting new SMEs in the UK.
Environmental impact
The Group is committed to being both socially and environmentally responsible and recognises the impact it has on the environment. It has delegated the day-to-day asset and facilities management to the Asset and Facilities Managers, who are responsible for the provision of energy supplies, including the procurement of renewable energy, managing the Group's waste schemes and raising general awareness of environmental impact and waste reduction amongst the Group's employees and residents. This year has seen notable improvements made around sustainability, energy efficiency and links to charity.
Scape encourages sustainable living through communications with advice on recycling, energy saving and transportation. This year, a key focus was the issue of single use plastic. Scape commissioned 600 limited edition reusable water bottles featuring bespoke artwork which were given out to encourage students and staff to reduce plastic use. Students were invited to exchange their plastic bottle for a reusable one, which gave front of house staff the opportunity to engage with them on the issue.
The initiative helped students to live in a more sustainable way, consider the environment and also drink more water. The statistics below demonstrate how much of a difference a simple switch can make.
The environmental impact of this campaign helped to save c.105,000 plastic bottles(1) , the equivalent of:
-- 2,528 kg plastic waste -- 7,585 kg CO2 emissions -- 45 barrels of oil
In addition to environmental campaigns, Scape also worked with The Student Energy Project to educate their residents on how to live a more energy efficient life, with on-site campaigns and email communications.
'When our residents said that eliminating single use plastic and recycling was a priority for them, we listened. It has been very rewarding to see the positive reception of this initiative and seeing the students enjoy using the Scape water bottles'.
Neil Smith,
Managing Director, Scape
1. https://www.london.gov.uk/what-we-do/environment/waste-and-recycling/single-use-plastic-bottles
2. http://veragon.com/eic/
Sustainable buildings
The Group's environmental sustainability measures include the use of highly efficient combined heat and power ("CHP") systems, ground source heat pumps and intelligent interior heating and lighting to minimise GHG emissions. CHP is a highly efficient process that captures and utilises the heat that is a by-product of the electricity generation process. By generating heat and power simultaneously, CHP can reduce carbon emissions by up to 30% compared to the separate means of conventional generation via a boiler and power station.
The Company's property portfolio incorporates green roof space, rainwater harvesting and sustainable waste management, including diverting waste from landfill to generate renewable electricity via the waste management process. In the year to 30 June 2019, a total of 702 tonnes of property waste, has been diverted from landfill, with Scape procuring the conversion of 86% of all property waste into renewable energy and 14% into national recycling schemes. The property waste has been recycled into various consumer products such as cups and bottles and renewable energy, with approximately 330,000 kWh of electricity being generated during the year.
Energy efficiency
The Company's buildings are either constructed, or acquired as newly operational properties and therefore conform to the Company's requirements for the highest standards of energy efficiency. The properties are designed with this in mind, with 100% of the portfolio with an EPC rated B or above.
An energy performance certificate ("EPC") is required by law whenever a building is bought, sold or rented. An EPC is a key measure of an asset's energy efficiency, and grades the property from A (most efficient) to G (least efficient).
At Scape Mile End the Asset and Facilities Manager is in the process of replacing all existing fluorescent lighting with LED lighting to improve energy efficiency across the building. Energy consumption for a florescent lamp is up to 10 times the usage of LED equivalents and therefore significant financial savings can be achieved by upgrading building light fittings.
The Company portfolio (by gross internal area)
is rated as follows:
24% = A
76% = B
ENERGY AND CARBON DATA
Greenhouse gas emissions
Year ended Year ended
Carbon emissions data 30 June 2019 30 June 2018
------------------------------------------------------------------- ------------ ------------
Absolute energy use:
Residential gas (kWh) 8,781,918 9,356,436
Residential oil (kWh) - -
Residential electricity (kWh) 5,851,542 5,701,264
------------------------------------------------------------------- ------------ ------------
Absolute CO(2) e emissions (tonnes CO(2) e) 3,110 3,335
------------------------------------------------------------------- ------------ ------------
Residential gas emissions (tonnes CO(2) e) (Scope 1) 1,615 1,721
Residential oil emissions (tonnes CO(2) e) (Scope 1) - -
Residential electricity emissions (tonnes CO(2) e) (Scope 2) 1,496 1,614
------------------------------------------------------------------- ------------ ------------
Total residential emissions (tonn
es CO(2) e) (Scopes 1+2) 3,110 3,335
------------------------------------------------------------------- ------------ ------------
CO(2) e emissions per sq ft 0.0036 0.0043
------------------------------------------------------------------- ------------ ------------
Residential gas and oil emissions (tonnes CO(2) e/sq ft) (Scope 1) 0.0019 0.0022
Residential electricity emissions (tonnes CO(2) e/sq ft) (Scope 2) 0.0017 0.0021
------------------------------------------------------------------- ------------ ------------
Total residential emissions (tonnes CO(2) e/sq ft) (Scopes 1+2) 0.0036 0.0043
------------------------------------------------------------------- ------------ ------------
Methodology/notes:
The principal methodology used to calculate the emissions reflects the UK Government's Environmental Reporting Guidelines (2019 version). The Company has reported on all the emission sources required under the Regulations. An operational control approach was used to define the Company's organisational boundary and responsibility for GHG emissions. The Company owns 100% of the property assets it operates and has therefore reported on that basis. All material emission sources within this boundary have been reported upon, in line with the requirements of the Regulations.
30 June 30 June
Impact area EPRA Code Units of measure Indicator 2019 2018
------------------------------- -------------- ---------------------------- --------------- ---------- ----------
Total electricity consumption Elec-Abs Annual kWh All properties 5,851,542 5,701,264
Like-for-like total electricity
consumption Elec-Abs-Lfl Annual kWh All properties 5,752,917 4,873,169
Total district heating and
cooling consumption DH&C-Abs Annual kWh All properties 1,077,590 1,202,730
Total fuel consumption Fuels-Abs Annual kWh All properties 14,633,460 15,057,700
Like-for-like total fuel
consumption Fuels-Abs-Lfl Annual kWh All properties 14,455,981 12,331,536
Building energy intensity Energy-Int kWh/appropriate denominator All properties 3,555 4,229
------------------------------- -------------- ---------------------------- --------------- ---------- ----------
Methodology/notes:
Total consumption on an absolute basis has increased year-on-year due to Scape Bloomsbury becoming operational.
Like-for-like data: Scape Bloomsbury has been excluded in the current year like-for-like data to ensure a comparable portfolio year-on-year. The asset became operational part way through the current reporting year.
District heating: Scape Greenwich is the only property with district heating and cooling systems and therefore consumption and like-for-like data is identical.
Appropriate denominator: Consumption per bed has been chosen as the denominator.
30 June 30 June
Impact area EPRA code Units of measure Indicator 2019 2018
------------------------------------------- ------------ ------------------------ --------------- ------- -------
Total direct GHG emissions GHG-Dir-Abs Annual metric All properties 3,110 3,335
tonnes CO(2)
GHG emissions intensity from building
consumption GHG-Int Tonnes CO(2) / All properties 0.8 0.9
appropriate denominator
----------------------------------------- ------------------------------------------------------- ------- -------
Methodology/notes:
Appropriate denominator: Consumption per bed has been chosen as the denominator.
30 June 30 June
Impact area EPRA Code Units of measure Indicator 2019 2018
-------------------------------------- -------------- -------------------- --------------- ------- -------
Total water consumption Water-Abs Annual cubic metres All properties 197,016 169,329
Like-for-like total water consumption Water-Abs-Lfl Annual cubic metres All properties 179,843 114,279
Building water intensity Water-Int Annual metres All properties 47.9 47.6
-------------------------------------- -------------- -------------------- --------------- ------- -------
Methodology/notes:
Like-for-like data: Scape Bloomsbury has been excluded in the current year like-for-like data to ensure a comparable portfolio year-on-year. The asset became operational part way through the reporting year.
Appropriate denominator: Consumption per bed has been chosen as the denominator.
30 June 30 June
Impact area EPRA code Units of measure Indicator 2019 2018
---------------------------- -------------- ----------------------------- ------------------- --------- ---------
Total weight of waste by Annual metric tonnes and
disposal route Waste-Abs proportion by disposal route Tonnes of waste 705 100% 551 100%
---------------------------- -------------- ----------------------------- ------------------- --- ---- --- ----
Waste to energy 604 86% 458 83%
--------------------------------------------------------------------------------------------- --- ---- --- ----
Waste to
landfill 3 0% 3 0%
--------------------------------------------------------------------------------------------- --- ---- --- ----
Waste to recycling 98 14% 90 16%
--------------------------------------------------------------------------------------------- --- ---- --- ----
Like-for-like total weight Annual metric tonnes and
of waste by disposal route Waste-Abs-LfL proportion by disposal route Tonnes of waste 613 100% 463 100%
---------------------------- -------------- ----------------------------- ------------------- --- ---- --- ----
Waste to energy 525 86% 390 84%
--------------------------------------------------------------------------------------------- --- ---- --- ----
Waste to
landfill 3 1% 3 1%
--------------------------------------------------------------------------------------------- --- ---- --- ----
Waste to recycling 85 14% 70 15%
--------------------------------------------------------------------------------------------- --- ---- --- ----
Methodology/notes:
Like-for-like data: Scape Bloomsbury has been excluded in the current year like-for-like data to ensure a comparable portfolio year-on-year. The asset became operational part way through the reporting year.
30 June 30 June
2019 2018
-------------- --------------
Impact area EPRA code Units of measure Indicator Female Male Female Male
----------------- -------------- ----------------- -------------- ------ ------ ------ ------
Employee gender Diversity-Emp Number of Board of
diversity employees Directors 2 3 2 3
------------- ------ ------ ------ ------
Senior
management 2 3 2 5
----------------------------------------------------------------- ------ ------ ------ ------
Employees 64 57 72 49
----------------------------------------------------------------- ------ ------ ------ ------
Total 68 63 76 57
----------------------------------------------------------------- ------ ------ ------ ------
Gender pay ratio Diversity-Pay Percentage
differential All employees -15.1% +15.1% -13.2% +13.2%
----------------- ----------------------------------------------- ------ ------ ------ ------
30 June 30 June
Impact area EPRA code Units of measure Indicator 2019 2018
---------------------------------- ------------- ------------------------ -------------- ------- -------
Employee training and development Emp-Training Average hours per annum All employees 8.3 6.2
---------------------------------- ------------- ------------------------ -------------- ------- -------
Employee performance appraisals Emp-Dev Percentage of employees All employees 100% 100%
---------------------------------- ------------- ------------------------ -------------- ------- -------
New hires and turnover Emp-Turnover Percentage of employees All employees 71%(1) 53%
---------------------------------- ------------- ------------------------ -------------- ------- -------
Methodology/notes:
Scape has overall responsibility for the supervision and provision of asset management services through oversight and management of the employees of GCP Operations Limited, a subsidiary of the Company. GCP Operations Limited experiences a high employee turnover rate due to the nature of the roles in the business which include temporary staff and are predominantly service based.
30 June 30 June
Impact area EPRA Code Units of measure Indicator 2019 2018
--------------------- ----------- --------------------- --------------- -------------------- --------------------
Injury rate, lost day
rate, accident
Employee health and severity rate and
safety H&S-Emp absentee rate Injury rate 10.5% 7.9%
--------------------- ----------- --------------------- --------------- -------------------- --------------------
Lost day rate 0.0% 0.0%
----------------------------------------------------------------------- -------------------- --------------------
Accident
severity rate 0.0% 0.0%
----------------------------------------------------------------------- -------------------- --------------------
Absentee rate 0.7% 1.7%
----------------------------------------------------------------------- -------------------- --------------------
Asset health and Percentage
safety assessments H&S-Assets of assets All properties 100% 100%
--------------------- ----------- --------------------- ---------------
Asset health and Percentage
safety compliance H&S-Comp of assets All properties 100% 100%
--------------------- ----------- --------------------- ---------------
Community engagement, Comty-Eng Percentage of assets All properties The Company is indirectly involved in a
impact assessments number of social
and development and local community initiatives via the
programmes Asset and
Facilities Managers such as initiatives to
give back to the
local area through sponsorship and local
events
Read more in the full Annual Report
--------------------- ----------- --------------------- --------------- ------------------------------------------
RISK MANAGEMENT
Robust risk assessments and reviews of internal controls are undertaken regularly in the context of the Company's overall investment objective.
Role of the Board
The Directors have overall responsibility for risk management and internal controls within the Group. They recognise that risk is inherent in the operation of the Group and that effective risk management is an important element in the success of the organisation. The Directors have delegated responsibility for the assurance of the risk management process and the review of mitigating controls to the audit and risk committee.
The Directors, when setting the risk management strategy, also determine the nature and extent of the significant risks and the Company's risk appetite in implementing this strategy. A formal risk identification and assessment process has been in place since IPO, resulting in a risk framework document which summarises the key risks and their mitigants.
The Directors undertake a formal risk review with the assistance of the audit and risk committee at least twice a year in order to assess the effectiveness of the Group's risk management and internal control systems. During the year under review, the Directors have not identified, nor been advised of, any failings or weaknesses which they have determined to be of a material nature. The principal risks and uncertainties which the Group faces are set out below.
Internal control review
The Board is responsible for the internal controls relating to the Group including the reliability of the financial reporting process and for reviewing their effectiveness.
The Directors have reviewed and considered the guidance supplied by the Financial Reporting Council on risk management, internal control and related finance and business reporting. An ongoing process has been established for identifying, evaluating and managing the principal and emerging risks faced by the Group and is kept under regular review by the Board, through the audit and risk committee. This process, together with key procedures established with a view to providing effective financial control, was in place during the year under review and at the date of this report.
The internal control systems are designed to ensure that proper accounting records are maintained, that the financial information on which business decisions are made, and which is issued for publication, is reliable and that the assets of the Group are safeguarded.
The following are the main features of the Group's internal control and risk management systems:
- a defined schedule of matters reserved for decision by the Board, which is reviewed by the Board at least annually;
- the audit and risk committee regularly reviews the Company's internal controls, risk management systems and risk matrix;
- the Company has defined investment criteria, as set out in the investment policy. Compliance with these criteria is regularly reviewed by the Investment Manager, particularly when considering possible new investments;
- the Board has a procedure to ensure that the Company can continue to be approved as an investment company by complying with sections 1158/1159 of the Corporation Tax Act 2010;
- the Investment Manager and Administrator prepare forecasts and management accounts which allow the Board to assess the Company's activities and to review its performance;
- contractual agreements with the Investment Manager and other third party service providers, and adherence to them, are regularly reviewed;
- the services and controls at the Investment Manager and at other service providers are reviewed annually and assurance letters are provided by service providers to the Company on an annual basis;
- the audit and risk committee receives and reviews assurance reports on the controls of all third party service providers, including the Depository, Investment Manager and Administrator, undertaken by professional service providers; and
- the Investment Manager's Risk Officer continually reviews the Investment Manager's controls in its capacity as AIFM to the Company. Risk Officer reports are submitted to the committee on a six-monthly basis.
The risk management process and Group systems of internal control are designed to manage rather than eliminate the risk of failure to achieve the Company's objectives. It should be recognised that such systems can only provide reasonable, not absolute, assurance against material misstatement or loss.
The Directors have carried out a review of the effectiveness of the systems of internal control as they have operated over the period and up to the date of approval of the report and financial statements.
There were no matters arising from this review that required further investigation and no significant failings or weaknesses were identified.
Internal control assessment process
Robust risk assessments and reviews of internal controls are undertaken regularly in the context of the Company's overall investment objective. The Board, through the audit and risk committee, has categorised risk management controls under the following key headings:
-- operational risk; -- market risk; -- financial risk; and -- reputational risk.
In arriving at its judgement of what risks the Group faces, the Board has considered the Group's operations in the light of the following factors:
-- the nature and extent of risks which it regards as acceptable for the Group to bear within its overall business objective;
-- the threat of such risks becoming reality; -- the Group's ability to reduce the incidence and impact of risk on its performance;
-- the cost to the Group and benefits related to the review of risk and associated controls of the Group; and
-- the extent to which the third parties operate the relevant controls.
A risk matrix is in place against which the risks identified and the controls to mitigate those risks can be monitored. The risks are assessed on the basis of:
-- the likelihood of them happening; -- the impact on the business if they were to occur; and -- the effectiveness of the controls in place to mitigate them.
This risk register is reviewed at least every six months by the audit and risk committee and at other times as necessary.
Most of the day-to-day management functions of the Group are sub-contracted, and the Directors therefore obtain regular assurances and information from key third party suppliers regarding the internal systems and controls operating in their organisations. In addition, each of the third parties is requested to provide a copy of its report on internal controls each year, where available, which is reviewed by the audit and risk committee.
Principal risks and uncertainties
The Directors have identified the following principal risks and uncertainties and the actions taken to manage each of these. If one or more of these risks materialised, it could have the potential to significantly impact the Group's ability to meet its investment objective.
RISK 1: OPERATIONAL RISK
RISK IMPACT HOW THE RISK IS MANAGED CHANGE IN RESIDUAL RISK OVER
THE YEAR
---------------------------- ---------------------------- ---------------------------- ----------------------------
Reliance on the Investment Failure by a third party The performance of the Stable
Manager and third party service provider to carry Group's service providers is The Investment Manager
service providers out its obligations in closely monitored by the continues to provide
The Group relies upon the accordance with management engagement adequate resource and act
performance of third party the terms of its committee of the Board, with due skill, care
service providers to perform appointment, or to exercise which conducts review and diligence in its
its main due care and skill, could meetings with each of the responsibilities as
functions. In particular, have a material adverse Group's principal Investment Manager and AIFM
the Group depends on the effect on the Group's third party service to the Company. The
Investment Manager to performance. The misconduct providers on an annual Company's
provide investment or misrepresentations by basis. The audit and risk third party service
advice and management employees of the committee also reviews providers continue to act in
services. Such services, Group, the Investment the internal controls accordance with their
which include monitoring the Manager, the Asset and reports and other compliance obligations.
performance of Facilities Managers or other and regulatory reports of
the investment portfolio and third party service its service providers
conducting due diligence in providers could cause on an annual basis. The
respect of any new significant losses to the performance of the employees
investments, are Group. within the Group is
integral to the Group's monitored by the
performance. Board of GCP Operations and
Scape and considered
regularly by the Board.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Due diligence To the extent that the In addition to the due Stable
Prior to entering into an Investment Manager diligence carried out by the The Company's property
agreement to acquire any underestimates or fails to Investment Manager, third portfolio has continued to
property, the Investment identify risks and party technical, perform in line with
Manager will perform liabilities insurance and legal experts expectations, generating
due diligence, on behalf of associated with the are engaged to advise on rental income for the year
the Group, on the proposed investment in question, the specific risks to an of GBP44.4 million.
investment. The due Group may be subject to acquisition, whether
diligence process defects in title, it be structured via a
may not reveal all the facts to environmental, structural property--owning vehicle or
that may be relevant in or operational defects a direct property
connection with any proposed requiring remediation, or acquisition.
investment. may be unable
to obtain necessary permits
which may materially and
adversely impact the EPRA
NAV and the
earnings of the Company.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Concentration risk As a result of portfolio The Group is focused on the Decrease
The Company's property concentration, the Group may London market because this The Company has completed
portfolio comprised eleven be adversely affected by is where the largest the construction of its
assets at 30 June 2019. events, including supply/demand first asset in Brighton
Substantially all Brexit, which may damage or imbalance exists in the UK under a forward-funding
of the Group's assets are diminish London's student accommodation agreement and commenced
currently located in and attractiveness to students market. The Investment construction for a second
around London. (especially overseas Manager and the Asset asset in Brighton. The
students) or London property and Facilities Managers have Directors believe
values. significant experience in that Brighton demonstrates
the sector and continuously the strong supply and demand
monitor imbalances for student
the market and provide residential
quarterly updates to the accommodation similar to the
Board, to act as an early characteristics that make
warning signal of London attractive.
any adverse market
conditions ahead.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Net income and property A decrease in rental income, The Investment Manager will Stable
values occupancy and/or property only propose to the Board The Company's portfolio has
Occupancy, rental income and values may materially and those assets which it achieved full occupancy for
property values may be adversely believes are in the sixth consecutive year
adversely affected by a impact the NAV and earnings the most advantageous and year-on-year
number of factors, of locations and benefit from student rental growth(1) of
including a fall in the the Company as well as the large supply and demand 3.5%.
number of students, ability to service interest imbalances that can
competing sites, any harm to on its debt facility in the withstand the entry of new
the reputation of longer competitors into the market.
the Group or the Scape brand term. In addition, the quality of
amongst universities, assets
students or other potential that the Group acquires will
customers, be amongst the best in class
or as a result of other to minimise occupancy risk.
local or national factors, The
including Brexit. The Investment Manager monitors
failure to collect the performance of the Asset
rents, periodic renovation and Facilities Managers and
costs and increased provides
operating costs may also the Board with performance
adversely affect the reports on a quarterly
Group. basis, including any
operational or
performance-related
issues which could
potentially have an impact
on brand confidence or
integrity.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Property valuation Valuations of the Group's The Company has entered into Stable
The valuation of the Group's investments may not reflect a valuation agreement with The Company invests funds
property portfolio is actual sale prices, even Knight Frank LLP to provide with the aim of generating
inherently subjective, in where any such quarterly capital appreciation and
part because sales occur shortly after valuations of all of the investment income.
all property valuations are the relevant valuation date. Group's assets. Knight Frank
made on the basis of Property investments are LLP is one of the largest
assumptions which may not typically valuers of
prove to be accurate, illiquid and may be student accommodation in the
and because of the difficult for the Company to UK and therefore has access
individual nature of each sell and the price achieved to a large number of data
property and limited on any such realisation points
transactional activity. may be at a discount to the to support its valuations.
prevailing valuation of the In addition to this, the
relevant investments. Board of Directors has
significant experience
of property valuation and
its constituent elements.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Compliance with laws and An increase in the rates of The Company has appointed Stable
regulations stamp duty land tax could Gowling WLG (UK) LLP as The Company's internal
Any change in the laws, have a material impact on legal counsel, Link Company compliance procedures
regulations and/or the value Matters Limited continue to operate
government policy affecting of assets acquired. In as Company Secretary and effectively.
the Group, including addition, if the Group fails Deloitte LLP as tax adviser
any change in the Company's to remain a REIT for UK tax to ensure compliance with
tax status or in taxation purposes, all relevant
legislation in the UK its profits and property laws and regulations. The
(including a change valuation gains will be Board has ultimate
in interpretation of such subject to UK corporation responsibility for ensuring
legislation) may have a tax. adherence to all
material adverse effect on laws and regulations,
the ability of including the UK REIT regime
the Company to successfully and monitors the compliance
pursue its investment policy reports provided
and meet its investment by the Investment Manager
objective and other third party
or provide favourable service providers.
returns to shareholders.
---------------------------- ---------------------------- ---------------------------- ----------------------------
RISK 2: MARKET RISK
----------------------------------------------------------------------------------------------------------------------
RISK IMPACT HOW THE RISK IS MANAGED CHANGE IN RESIDUAL RISK OVER
THE YEAR
---------------------------- ---------------------------- ---------------------------- ----------------------------
UK property market An overall downturn in the The Investment Manager Stable
conditions UK property market as a continuously monitors market The valuation of the
The Group's profitability result of Brexit and/or conditions and provides the Company's property portfolio
depends on property values other factors and Board with at 30 June 2019 was GBP921.6
in the UK to a significant the availability of credit quarterly updates on the million(2)
extent. to the UK property sector student accommodation market , representing an increase
may have a materially and senior debt market to of 10.3% year-on-year on a
adverse effect act as an like-for-like basis.
upon the value of the early warning signal of any
property owned by the Group adverse market conditions
and ultimately upon the NAV ahead.
and the ability
of the Company to generate
revenues.
---------------------------- ---------------------------- ---------------------------- ----------------------------
Government policy and Brexit Material reductions to the The Board, together with its Increase
Changes in government policy number of students, relevant advisers, closely There continues to be
which adversely impact the including international monitors changes in considerable uncertainty
number of students in the UK students, attending government policy around the outcome of
may have HEIs in the UK and/or in respect of UK, EU and Brexit, with negotiations
a material adverse impact on material adverse impact on international students. with the EU ongoing.
the Company's ability to the value of student
meet its stated objectives. accommodation assets
Further, in the UK.
the Group may be subject to
a period of significant
uncertainty when the UK
leaves the EU.
---------------------------- ---------------------------- ---------------------------- ----------------------------
RISK 3: FINANCIAL RISK
----------------------------------------------------------------------------------------------------------------------
RISK IMPACT HOW THE RISK IS MANAGED CHANGE IN RESIDUAL RISK OVER
THE YEAR
---------------------------- ---------------------------- ---------------------------- ----------------------------
Breach of loan covenants and An adverse change to capital The Company's borrowing Stable
gearing limits values as a result of a policy provides for the The Company's gearing and
The availability of the downturn in the UK property Company to have no more than loan-to-value ratios remain
Company's debt facilities market, or 55% gearing in within long-term targets and
depends on the Company a reduction to net income the short term and 30% in the Company
complying with a due to factors such as a the long term. In addition is in full compliance with
number of key financial fall in the number of to this, the Investment all financial covenants at
covenants in respect of students or other Manager provides the year end.
loan-to-value and interest national factors, may lead the Board with a quarterly
service cover. to a situation whereby the update on the state of the
Company breaches its banking UK property market and the
covenants. senior debt
market.
---------------------------- ---------------------------- ---------------------------- ----------------------------
1. APM - see glossary for definitions and calculation methodology.
2. Excludes lease incentives.
Emerging risks
The Board notes emerging risks as a new area of focus within the 2019 AIC Code. Emerging risks include trends which are characterised by a high degree of uncertainty in terms of their occurrence, probability and their potential impact. As part of the Company's risk management processes, emerging risks are considered at the formal reviews of the Company's risk matrix. Emerging risks are by their very nature uncertain; examples include climate change, demographic trends, global financial volatility, new technologies and natural resources management, all areas which have been considered as part of the Company's risk reviews.
Going concern
In assessing the Group's ability to continue as a going concern, the Directors have considered the Company's investment objective, risk management policies, capital management (see note 21 to the financial statements), the quarterly NAV and the nature of its portfolio and expenditure projections. The Directors believe that the Group has adequate resources, an appropriate financial structure and suitable management arrangements in place to continue in operational existence for the foreseeable future, being a period of at least twelve months from the date of this report. In addition, the Board has had regard to the Group's investment performance, the price at which the Company's shares trade relative to the NAV and ongoing investor interest in the continuation of the Company (including feedback from meetings and conversations with shareholders by the Group's advisers).
Based on their assessment and considerations, the Directors have concluded that the financial statements of the Company and the Group should continue to be prepared on a going concern basis and the financial statements have been prepared accordingly.
The Directors have also made an assessment of the viability of the Company.
Viability statement
The Directors have carried out a robust assessment of each of the Company's principal risks and uncertainties detailed above, in particular the risk and impact of a downturn in the UK commercial property market or the international student market which could materially affect the valuation and cash flows of the Company's investments and therefore, impact the viability of the Company. They have also considered the Company's policy for monitoring, managing and mitigating its exposure to these risks.
The Directors have assessed the prospects of the Group over a period longer than the twelve months required by the going concern provision. The Board has determined that a five-year period constitutes an appropriate period to provide its viability statement. The Company does not have a fixed life. It assumes long-term hold periods for the assets in its portfolio and analyses its financial model over a five-year horizon.
This assessment involved an evaluation of the potential impact on the Group of these risks occurring. Where appropriate, the Group's financial model was subject to a sensitivity analysis involving flexing a number of key assumptions in the underlying financial forecasts in order to analyse the effect on the Group's net cash flows and other key financial ratios including loan covenants.
This analysis included modelling the impact of severe but plausible downside scenarios that incorporate the principal risks or a combination of these risks as follows:
-- reductions in rental income; -- reductions in property values; -- increases in the Company's operating expenses; and
-- deflationary scenarios that could impact on the Company's ability to meet its loan covenants.
The Company's assets generate revenues considered to be dependable due to the inherent supply/demand imbalances of the market in which the Company operates. Additionally, the Company's leverage predominantly comprises fixed-rate facilities which mature beyond the five-year horizon. Therefore, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the five-year period of their assessment.
This strategic report has been approved by the Board and signed on its behalf by:
Robert Peto
Chairman
3 September 2019
GOVERNANCE
Board of Directors
Robert Peto - Chairman
Malcolm Naish - Senior Independent Director and Chair of the management engagement committee
Marlene Wood - Chair of the audit and risk committee
Gillian Day - Chair of the remuneration committee
David Hunter - Director
Peter Dunscombe retired as a Director with effect from 6 November 2018.
EXTRACTS FROM THE DIRECTORS' REPORT
Share capital
On 25 September 2018, the Company issued 25,512,151 ordinary shares at a price of 149.50 pence per share, with an aggregate nominal value of GBP255,121.51, raising gross proceeds of GBP38.1 million. The placing price represented a 3.10 pence discount to the closing mid-price per ordinary share on 7 September 2018 of 152.60 pence. The shares were issued under the existing shareholder authorities granted at the Company's annual general meeting held on 25 October 2017, to issue up to 38,506,400 ordinary shares on a non-pre-emptive basis.
The shares were issued to institutional investors and professionally advised private investors and admitted to trading on the Premium Segment of the London Stock Exchange's Main Market on 25 September 2018.
At the annual general meeting held on 6 November 2018, the Company was granted authority to allot ordinary shares of the Company up to 10% of the Company's total issued share capital at that date, amounting to 38,506,400 ordinary shares.
On 4 June 2019, the Company issued 3,076,923 ordinary shares at a price of 162.50 pence per share, with an aggregate nominal value of GBP30,769.23, raising gross proceeds of GBP5.0 million. The placing price represented a 2.47 pence premium to the Company's prevailing EPRA NAV (ex-income) on 31 March 2019 of 160.03 pence per ordinary share. The shares were issued to institutional investors and professionally advised private investors and admitted to trading on the Premium Segment of the London Stock Exchange's Main Market on 4 June 2019.
As at the date of this report, the Company may allot further ordinary shares up to an aggregate nominal amount of GBP354,294.77 under its existing authority.
At the annual general meeting held on 6 November 2018, the Company was granted authority to purchase up to 14.99% of the Company's ordinary share capital in issue at that date on which the notice of AGM was published, amounting to 57,721,176 ordinary shares. No ordinary shares have been bought back under this authority. This authority will expire at the conclusion of, and renewal will be sought at, the annual general meeting to be held on 6 November 2019. Shares bought back by the Company may be held in treasury, from where they could be re-issued at or above the prevailing NAV quickly and cost effectively. This provides the Company with additional flexibility in the management of its capital base. No shares were held in treasury during the year or at the year end.
At the year end, and as at the date of this report, the issued share capital of the Company comprised 413,653,630 ordinary shares. At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and, on a poll, to one vote for every ordinary share held. At 30 June 2019, the total voting rights of the Company were 413,653,630, and as at the date of this report are 413,653,630.
Dividends
Dividends totalling 6.15 pence per ordinary share have been paid or declared in respect of the year ended 30 June 2019 as follows:
Year ended Year ended
30 June 2019 30 June 2018
pence pence
------------------------ ------------ ------------
First interim dividend 1.53 1.48
Second interim dividend 1.53 1.48
Third interim dividend 1.53 1.48
Fourth interim dividend 1.56 1.51
------------------------ ------------ ------------
Total 6.15 5.95
------------------------ ------------ ------------
FINANCIAL STATEMENTS
Statement of Directors' responsibilities
In respect of the annual report and financial statements
The Directors are responsible for preparing the annual report and financial statements in accordance with applicable UK law and IFRS as adopted by the EU.
Under company law, the Directors must not approve the financial statements unless they are satisfied that they present fairly the financial position, financial performance and cash flows of the Group for that year.
In preparing the financial statements, the Directors are required to:
-- select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;
-- present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;
-- provide additional disclosures when compliance with specific requirements in IFRS is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Group's financial position and financial performance;
-- state that the Group has complied with IFRS, subject to any material departures disclosed and explained in the financial statements;
-- make judgements and estimates that are reasonable and prudent; and
-- prepare financial statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and enable them to ensure that the financial statements comply with the Companies Act 2006 and Article 4 of the IAS Regulation. They are also responsible for safeguarding the assets of the Group and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
Under applicable law and regulations, the Directors are also responsible for preparing a strategic report, Directors' report, Directors' remuneration report and corporate governance statement that comply with that law and those regulations, and for ensuring that the annual report includes information required by the Listing Rules and Disclosure Guidance and Transparency Rules of the FCA.
The financial statements are published on the Company's website, www.gcpstudent.com, which is maintained on behalf of the Company by the Investment Manager. The work carried out by the Auditor does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditor accepts no responsibility for any changes that have occurred to the financial statements since they were initially presented on the website.
Under the investment management agreement, the Investment Manager is responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Visitors to the website need to be aware that legislation in the UK covering the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.
We confirm that to the best of our knowledge:
-- the financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company and the Group; and
-- this annual report includes a fair review of the development and performance of the business and the position of the Company and the Group, together with a description of the principal risks and uncertainties that it faces.
The Directors consider that the annual report and financial statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company's position and performance, business model and strategy.
On behalf of the Board
Robert Peto
Chairman
3 September 2019
NON-STATUTORY ACCOUNTS
The financial information set out below does not constitute the Company's statutory accounts for the year ended 30 June 2019 or the year ended 30 June 2018 but is derived from those accounts. Statutory accounts for the year ended 30 June 2018 have been delivered to the Registrar of Companies and those for 2019 will be delivered in due course. The Auditor has reported on those accounts; their report was (i) unqualified, (ii) did not include a reference to any matters to which the Auditor drew attention by way of emphasis without qualifying their report and (iii) did not contain a statement under Section 498 (2) or (3) of the Companies Act 2006. The text of the Auditor's report can be found in the Company's full annual report and financial statements at www.gcpstudent.com.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the year ended 30 June 2019
30 June 2019 30 June 2018
Continuing operations Notes GBP'000 GBP'000
------------------------------------------------------- ----- ------------ ------------
Rental income 4 44,410 35,790
Property operating expenses 5 (9,364) (7,946)
------------------------------------------------------- ----- ------------ ------------
Gross profit 35,046 27,844
Administration expenses 5 (8,808) (7,434)
------------------------------------------------------- ----- ------------ ------------
Operating profit before gains on investment properties 26,238 20,410
Fair value gains on investment properties 10 73,865 47,565
------------------------------------------------------- ----- ------------ ------------
Operating profit 100,103 67,975
Finance income 15 1,088 323
Finance expenses 16 (8,405) (7,240)
------------------------------------------------------- ----- ------------ ------------
Profit before tax 92,786 61,058
Tax charge on residual income 7 - -
------------------------------------------------------- ----- ------------ ------------
Profit for the year 92,786 61,058
------------------------------------------------------- ----- ------------ ------------
Total comprehensive income for the year 92,786 61,058
------------------------------------------------------- ----- ------------ ------------
EPS (basic and diluted) (pps) 3 22.92 15.89
------------------------------------------------------- ----- ------------ ------------
The accompanying notes form an integral part of these financial statements.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
30 June 2019 30 June 2018
Notes GBP'000 GBP'000
-------------------------------------- ----- ------------ ------------
Assets
Non-current assets
Investment property 10 919,203 784,424
Deposit for investment property - 2,648
Retention account 308 308
-------------------------------------- ----- ------------ ------------
919,511 787,380
-------------------------------------- ----- ------------ ------------
Current assets
Cash and cash equivalents 23 15,509 29,213
Deposit for investment property 2,648 -
Trade and other receivables 24 14,594 9,005
-------------------------------------- ----- ------------ ------------
32,751 38,218
-------------------------------------- ----- ------------ ------------
Total assets 952,262 825,598
-------------------------------------- ----- ------------ ------------
Liabilities
Non-current liabilities
Interest-bearing loans and borrowings 17 (249,111) (232,771)
Retention account (308) (308)
-------------------------------------- ----- ------------ ------------
(249,419) (233,079)
-------------------------------------- ----- ------------ ------------
Current liabilities
Trade and other payables 25 (5,887) (8,183)
Deferred income 25 (12,293) (10,126)
-------------------------------------- ----- ------------ ------------
(18,180) (18,309)
-------------------------------------- ----- ------------ ------------
Total liabilities (267,599) (251,388)
-------------------------------------- ----- ------------ ------------
Net assets 684,663 574,210
-------------------------------------- ----- ------------ ------------
Equity
Share capital 18 4,137 3,851
Share premium 19 450,658 408,617
Special reserve 20 38,759 44,497
Retained earnings 20 191,109 117,245
-------------------------------------- ----- ------------ ------------
Total equity 684,663 574,210
-------------------------------------- ----- ------------ ------------
Number of shares in issue 413,653,630 385,064,556
IFRS and EPRA NAV per share (pps) 3 165.52 149.12
-------------------------------------- ----- ------------ ------------
These financial statements were approved by the Board of Directors of GCP Student Living plc on 3 September 2019 and signed on its behalf by:
Robert Peto
Chairman
Company number: 08420243
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Share Share Special Retained
capital premium reserve earnings Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ----- ------- -------- -------- -------- --------
Balance at 1 July 2018 3,851 408,617 44,497 117,245 574,210
----------------------------------------------- ----- ------- -------- -------- -------- --------
Total comprehensive income - - - 92,786 92,786
Ordinary shares issued 286 42,854 - - 43,140
Share issue costs - (813) - - (813)
Dividends paid in respect of the previous year 8 - - (2,508) (3,306) (5,814)
Dividends paid in respect of the current year 8 - - (3,230) (15,616) (18,846)
----------------------------------------------- ----- ------- -------- -------- -------- --------
Balance at 30 June 2019 4,137 450,658 38,759 191,109 684,663
----------------------------------------------- ----- ------- -------- -------- -------- --------
Consolidated statement of changes in equity
For the year ended 30 June 2018
Share Share Special Retained
capital premium reserve earnings Total
Notes GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ----- ------- -------- ------- --------- --------
Balance at 1 July 2017 3,358 340,233 53,576 69,827 466,994
----------------------------------------------- ----- ------- -------- ------- --------- --------
Total comprehensive income - - - 61,058 61,058
Ordinary shares issued 493 69,507 - - 70,000
Share issue costs - (1,123) - - (1,123)
Dividends paid in respect of the previous year 8 - - (3,300) (2,322) (5,622)
Dividends paid in respect of the current year 8 - - (5,779) (11,318) (17,097)
----------------------------------------------- ----- ------- -------- ------- --------- --------
Balance at 30 June 2018 3,851 408,617 44,497 117,245 574,210
----------------------------------------------- ----- ------- -------- ------- --------- --------
CONSOLIDATED STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
30 June 2019 30 June 2018
Notes GBP'000 GBP'000
-------------------------------------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Operating profit 100,103 67,975
Adjustments to reconcile profit for the year to net operating cash flows:
Gains from change in fair value of investment properties (73,865) (47,565)
Increase in other receivables and prepayments (3,159) (2,035)
Increase in other payables and accrued expenses 2,535 3,023
-------------------------------------------------------------------------- ----- ------------ ------------
Net cash flow generated from operating activities 25,614 21,398
-------------------------------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Acquisition of investment properties - (29,536)
Land and development expenditure on properties under construction (58,327) (51,697)
Capital expenditure on investment properties (7,872) (20,206)
-------------------------------------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (66,199) (101,439)
-------------------------------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Proceeds from issue of ordinary shares 43,140 70,000
Share issue costs (813) (1,123)
Proceeds from interest-bearing loans and borrowings 34,620 15,000
Repayment of interest-bearing loans and borrowings (17,470) -
Loan arrangement fees (1,429) (53)
Finance income 1,020 100
Finance expenses (7,614) (7,007)
Dividends paid in the year (24,573) (22,773)
-------------------------------------------------------------------------- ----- ------------ ------------
Net cash flow generated from financing activities 26,881 54,144
-------------------------------------------------------------------------- ----- ------------ ------------
Net decrease in cash and cash equivalents (13,704) (25,897)
Cash and cash equivalents at start of the year 29,213 55,110
-------------------------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of the year 23 15,509 29,213 -------------------------------------------------------------------------- ----- ------------ ------------
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
For the year ended 30 June 2019
Part 1. Basis of preparation
This section includes the Company's accounting policies applied to the financial statements in accordance with IFRS. Accounting policies specific to a particular note have been included with the note to the financial statements and are identified by way of a coloured panel.
1. General information
GCP Student Living plc is a REIT incorporated in England and Wales on 26 February 2013. The registered office of the Company is located at 51 New North Road, Exeter EX4 4EP. The Company's shares are listed on the Premium Segment of the Main Market of the London Stock Exchange.
2. Basis of preparation
These financial statements are prepared in accordance with IFRS issued by the IASB as adopted by the European Union. The financial statements have been prepared under the historical cost convention, except for investment property, which has been measured at fair value and property under development which is measured at cost less any impairment, further information is given in note 10. The audited financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (GBP'000), except when otherwise indicated.
These financial statements are for the year ended 30 June 2019. Comparative figures are for the previous accounting period, the year ended 30 June 2018.
The Group has chosen to adopt the EPRA best practice guidelines for calculating key metrics such as NAV and earnings, which are presented alongside the IFRS measures where applicable.
2.1 Changes to accounting standards and interpretations
New standards, amendments to standards and interpretations which came into effect for accounting periods starting on or after 1 January 2018 have had an impact on the financial statements as follows:
-- IFRS 9 Financial Instruments (effective for annual periods beginning on or after 1 January 2018). The Group now applies an expected credit loss model when calculating impairment losses on its trade and other receivables. Rental guarantees included with trade and other receivables are classified as a financial asset and valued at fair value; and
-- IFRS 15 Revenue from Contracts (effective for annual periods beginning on or after 1 January 2018). The Group's revenue is outside the scope of IFRS 15.
A review of comparative figures has taken place and it has been determined that the accounting policy change has not had a material impact on the impairment of debtors at 30 June 2018.
The following new standards and amendments to existing standards have been published and, once approved by the EU, will be mandatory for the Group's accounting periods beginning after 1 July 2019 or later periods. The Group has decided not to adopt them early.
-- IFRS 16 Leases (effective for annual periods beginning on or after 1 January 2019). IFRS 16 has minimal impact on lessors like the Group.
-- IFRS 3 Business Combinations - Definition of a Business, to be applied to transactions that are either business combinations or asset acquisitions for which the acquisition date is on or after the first annual reporting period beginning on or after 1 January 2020. Whilst this will not affect historic transactions of the Company, as and when an acquisition takes place the accounting treatment will be reviewed in line with the new standard.
The Group does not expect the adoption of new accounting standards issued but not yet effective to have a significant impact on its financial statements.
2.2 Significant accounting judgements and estimates
The preparation of these financial statements in accordance with IFRS requires the Directors of the Company to make judgements, estimates and assumptions that affect the reported amounts recognised in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability in the future.
Judgements
In the process of applying the Group's accounting policies, management has made the following judgements which have the most significant effect on the amounts recognised in the consolidated financial statements:
Operating lease commitments - Group as lessor
The Group has entered into commercial property leases on its investment property portfolio. The Group has determined, based on evaluation of the terms and conditions of the arrangements, such as the lease term not constituting a substantial portion of the economic life of the commercial property, that it retains all the significant risks and rewards of ownership of these properties and recognises the contracts as operating leases.
Going concern
The Directors have made an assessment of the Group's ability to continue as a going concern and are satisfied that the Company has the resources to continue in business for the foreseeable future, for a period of not less than twelve months from the date of this report.
Furthermore, the Directors are not aware of any material uncertainties that may cast significant doubt upon the Group's ability to continue as a going concern. Therefore, the financial statements have been prepared on the going concern basis.
Estimates
Valuation of property
The Group's investment properties are held at fair value as determined by the external valuer in accordance with the RICS Valuation Global Standards 2017 and IFRS 13. Refer to note 10 for further details of the judgements and estimates made in determining the valuation of property.
2.3 Summary of significant accounting policies
The principal accounting policies applied in the preparation of these financial statements are stated in the notes to the financial statements.
a) Basis of consolidation
As a real estate entity, the Company does not meet the definition of an investment entity and therefore does not qualify for the consolidation exception under IFRS 10. The consolidated financial statements comprise the financial statements of the Group and its subsidiaries as at 30 June 2019. Subsidiaries are consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date that such control ceases. An investor controls an investee when the investor is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. In preparing these financial statements, intra-group balances, transactions and unrealised gains or losses have been eliminated in full. The subsidiaries all have the same year end as the Company. Uniform accounting policies are adopted in the financial statements for transactions and events in similar circumstances.
b) Functional and presentation currency
The overall objective of the Group is to generate returns in Pound Sterling and the Group's performance is evaluated in Pound Sterling. Therefore, the Directors consider Pound Sterling as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions and have therefore adopted it as the functional and presentation currency.
c) Segmental reporting
The Directors are of the opinion that the Group is engaged in a single segment of business, being the investment and provision of student accommodation facilities (including ancillary retail, commercial and teaching facilities) in the UK.
Part 2. Review of the financial year
This section includes information on performance of the Company, including rental income, EPRA metrics, operating and administration expenses and information of dividends for the year. The EPRA metrics have been reconciled to the IFRS measures where appropriate and are included to enhance comparability across the real estate sector.
3. EPRA metrics
3.1 EPRA earnings
Basic EPS is calculated by dividing profit for the year attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares during the year. As there are no dilutive instruments in issue, basic and diluted EPS are identical. The following reflects the earnings and share data used in the basic and diluted EPS computations:
30 June 2019 30 June 2018
GBP'000 GBP'000
---------------------------------------------- ------------ ------------
Group earnings for EPS and diluted EPS 92,786 61,058
Fair value gains on investment properties (73,865) (47,565)
---------------------------------------------- ------------ ------------
Group earnings for basic and diluted EPRA EPS 18,921 13,493
---------------------------------------------- ------------ ------------
Group-specific adjustments:
Other non-recurring transactions - 427
Licence fees on forward-funded developments 2,263 1,490
---------------------------------------------- ------------ ------------
Group-specific adjusted earnings 21,184 15,410
---------------------------------------------- ------------ ------------
30 June 2019 30 June 2018
Pence per share Pence per share
---------------------------- ----------------------------- ---------------
Basic Group EPS 22.92 15.89
---------------------------- ----------------------------- ---------------
Basic Group EPRA EPS 4.67 3.51
---------------------------- ----------------------------- ---------------
Diluted Group EPS 22.92 15.89
---------------------------- ----------------------------- ---------------
Diluted Group EPRA EPS 4.67 3.51
---------------------------- ----------------------------- ---------------
Group-specific adjusted EPS 5.23 4.01
---------------------------- ----------------------------- ---------------
Total dividends 6.15 5.95
---------------------------- ----------------------------- ---------------
Dividend cover ratio(1) 85% 67%
---------------------------- ----------------------------- ---------------
30 June 2019 30 June 2018
Number of shares Number of shares
------------------------------------------- ---------------- ----------------
Weighted average number of shares in issue 404,793,233 384,254,215
------------------------------------------- ---------------- ----------------
1. APM - see glossary for definitions and calculation methodology
A third Group-specific adjusted EPS calculation has been calculated to show EPRA earnings including the non-recurring transactions arising in the year, adding licence fees on forward-funding agreements which are treated as capital in the financial statements. The items have arisen from the following:
1. For the year ended 30 June 2019:
i. licence fees of GBP2,263,000 from the developers of Scape Brighton and Circus Street, Brighton in respect of forward-funding agreements.
2. For the year ended 30 June 2018:
i. costs relating to professional advisory fees of GBP354,000; ii. capital goods scheme adjustments of GBP73,000; and
iii. licence fees GBP1,490,000 from the developers of Scape Wembley and Circus Street, Brighton in respect of forward-funding agreements.
3.2 EPRA NAV
Basic NAV per share amounts are calculated by dividing net assets in the statement of financial position attributable to ordinary equity holders of the Company by the number of ordinary shares outstanding at the end of the year. As there are no dilutive instruments in issue, basic and diluted NAV per share are identical. The following reflects the net asset and share data used in the basic and diluted NAV per share computations:
The EPRA NAV is be calculated as:
30 June 2019 30 June 2018
GBP'000 GBP'000
----------------------------------------------- ------------ -------------
NAV per the financial statements 684,663 574,210
Effect of dilutive instruments - -
Fully diluted NAV 684,663 574,210
Fair value of derivative financial instruments - -
Deferred tax liability - -
----------------------------------------------- ------------ -------------
EPRA NAV 684,663 574,210
----------------------------------------------- ------------ -------------
Fully diluted number of shares 413,653,630 385,064,556
----------------------------------------------- ------------ -------------
EPRA NAV per share 165.52 149.12
----------------------------------------------- ------------ -------------
EPRA NNNAV is equivalent to EPRA NAV, as the Company has not made a provision for deferred tax and carrying value of financial instruments.
3.3 EPRA cost ratio
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------------------------------------------------------- ------------ ------------
Operating and administration costs 18,172 15,380
Less ground rent (335) (247)
Less recoverable service charge income and other similar costs (239) (226)
EPRA costs (including direct vacancy costs) 17,598 14,907
Gross rental income 43,939 35,337
Less recoverable service charge income and other similar items (239) (226)
Gross rental income 43,700 35,111
--------------------------------------------------------------- ------------ ------------
EPRA cost ratio (including direct vacancy costs) 40% 42%
--------------------------------------------------------------- ------------ ------------
Further EPRA metrics are disclosed in notes 11 and 12 to the financial statements.
4. Rental income
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------- ------------ ------------
Nomination rental income 5,990 4,888
Direct let rental income 35,008 27,561
Discounts (261) (230)
------------------------- ------------ ------------
Total student income 40,737 32,219
Teaching space income 501 484
Retail space income 2,701 2,634
------------------------- ------------ ------------
Gross rental income 43,939 35,337
Ancillary income 471 433
Other income - 20
------------------------- ------------ ------------
Total 44,410 35,790
------------------------- ------------ ------------
Ancillary income includes income received through services provided to students such as laundry, cleaning and vending machines.
Accounting policy
Rental income, including direct lets to students, nomination agreements to HEIs and leases to commercial tenants receivable under operating leases, is recognised on a straight--line basis over the term of the lease, except for contingent income in respect of rental guarantees which is recognised when it arises.
Incentives for lessees to enter into lease agreements are spread evenly over the lease term, even if the payments are not made on such a basis. The lease term is the non--cancellable period of the lease together with any further term for which the tenant has the option to continue the lease, where, at the inception of the lease, the Directors are reasonably certain that the tenant will exercise that option.
5. Property operating and administration expenses
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------ ------------ ------------
Operating costs 2,641 2,046
Marketing 401 355
Utilities 1,568 1,163
Property maintenance 1,496 1,593
Staff costs 3,258 2,789
------------------------------ ------------ ------------
Property operating expenses 9,364 7,946
------------------------------ ------------ ------------
Investment management fees 6,455 5,463
Directors' remuneration 186 176
Other administration expenses 2,167 1,795
------------------------------ ------------ ------------
Administration expenses 8,808 7,434
------------------------------ ------------ ------------
Total 18,172 15,380
------------------------------ ------------ ------------
Investment management fees are further disclosed in note 28 and Directors' remuneration is further disclosed in note 26.
Asset and facilities management agreement
During the year under review, the Company had two Asset and Facilities Managers.
Scape Student Living Limited
Under the terms of its asset and facilities management agreements, Scape is entitled to a fee which is calculated and paid quarterly in arrears and is one-quarter of the Investment Manager's fee attributable to those assets in the Group's portfolio for which it provides asset and facilities management services. The fee paid to Scape is paid from the Investment Manager's fee. The executive directors of the Investment Manager indirectly own a c.25% interest in Scape. In addition to this, Mr Nigel Taee, a non-executive director of the Investment Manager, owns approximately 25% of Scape. Mr Taee holds a c.20% interest in Gravis Capital Management Limited, of which he is a non-executive director and in which capacity he is excluded from any involvement in investment management activities relating to the Company. Mr Taee is chairman of Scape.
Collegiate Accommodation Consulting Limited
Under the terms of its asset and facilities management agreement, Collegiate is entitled to a fee of 5.5% of the total rental income collected per annum attributable to Water Lane Apartments. The fee is calculated and paid monthly in arrears.
Administration agreements
Link Alternative Fund Administrators Limited has been appointed as the Administrator to the Company and its subsidiaries. It provides the day-to-day administration services for these entities. It is also responsible for the Company's general administrative functions, such as the calculation and publication of the NAV and maintenance of the Company's accounting and statutory records. Under the terms of its administration agreement, Link Alternative Fund Administrators Limited is entitled to an administration fee of GBP145,000 per annum (exclusive of VAT). The administration agreement is terminable upon six months' written notice.
Secretarial agreement
Link Company Matters Limited has been appointed by the Company to provide company secretarial functions required by the Companies Act 2006. The Secretary is entitled to a fee of GBP68,807 per annum in respect of the Company and GBP1,936 per annum in respect of each UK subsidiary. The company secretarial fees are subject to an annual RPI increase. The secretarial agreement is terminable upon six months' written notice.
Depositary agreement
Langham Hall UK Depositary LLP has been appointed as depositary to the Company. The Depositary is responsible for ensuring the Company's cash flows are properly monitored; the safekeeping of custody assets and the non-custody assets of the Company entrusted to it (held on trust for the Company as applicable); and the oversight and supervision of the Investment Manager and the Company. Under the terms of the depositary agreement, the Depositary is entitled to a fee of GBP49,722 per annum, subject to annual RPI increase. The depositary agreement is terminable by either the Company and/or the Investment Manager upon six months' written notice.
Accounting policy
All property operating expenses and administration expenses are charged to the income statement and are accounted for on an accruals basis.
6. Auditor's remuneration
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------- ------------ ------------
Audit fee 159 142
Other services 9 9
--------------- ------------ ------------
Total 168 151
--------------- ------------ ------------
The Company reviews the scope and nature of all proposed non-audit services before engagement, to ensure that the independence and objectivity of the Auditor are safeguarded. Audit fees are comprised of the following items:
30 June 2019 30 June 2018
GBP'000 GBP'000
---------------------------------------------------------------- ------------ ------------
Annual report and financial statements 26 26
Subsidiary financial statements for the year ended 30 June 2019 116 -
Subsidiary financial statements for the year ended 30 June 2018 17 107
Subsidiary financial statements for the year ended 30 June 2017 - 9
---------------------------------------------------------------- ------------ ------------
Total 159 142
---------------------------------------------------------------- ------------ ------------
For the year ended 30 June 2019, the Auditor provided non-audit services, being a review of the half-yearly report and financial statements for a fee of GBP9,000 (2018: GBP9,000).
30 June 2019 30 June 2018
GBP'000 GBP'000
-------------------------------------------- ------------ ------------
Half-yearly report and financial statements 9 9
-------------------------------------------- ------------ ------------
Total 9 9
-------------------------------------------- ------------ ------------
The audit and risk committee has considered the independence and objectivity of the Auditor and has conducted a review of non-audit services which the Auditor has provided during the year under review. The audit and risk committee receives an annual assurance from the Auditor that its independence is not compromised by the provision of such non-audit services.
7. Taxation
Corporation tax has arisen as follows:
30 June 2019 30 June 2018
GBP'000 GBP'000
---------------------------------------------------- ------------ ------------
Corporation tax on residual income for current year - -
Corporation tax on residual income for prior periods - -
---------------------------------------------------- ------------ ------------
Total - -
---------------------------------------------------- ------------ ------------
Reconciliation of tax charge to profit before tax:
30 June 2019 30 June 2018
GBP'000 GBP'000
----------------------------------------- ------------ ------------
Profit before tax 92,786 61,058
----------------------------------------- ------------ ------------
Corporation tax at 19% (2018: 19%) 17,629 11,601
Change in value of investment properties (14,034) (9,037)
Tax exempt property rental business (3,962) (3,017)
Amounts not deductible for tax purposes - (30)
Capital allowances (541) (417)
Excess management expenses 908 920
Other - (20)
----------------------------------------- ------------ ------------
Total - -
----------------------------------------- ------------ ------------
The Group has unrelieved excess tax losses of GBP14,161,000 (2018: GBP10,016,000) and a non-trade loan relationship deficit of GBP2,003,000 (2018: GBP2,003,000). As it is unlikely that the Group will generate sufficient taxable profits in the future to utilise these amounts, no deferred tax asset has been recognised in respect of these items.
Accounting policy
Corporation tax is recognised in the income statement except where in certain circumstances corporation tax may be recognised in other comprehensive income.
Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.
As a REIT, the Group is exempt from corporation tax on the profits and gains from its property rental business, provided it continues to meet certain conditions as per REIT regulations.
Non-qualifying profits and gains of the Group (residual income) continue to be subject to corporation tax. Therefore, current tax is the expected tax payable on the non-qualifying taxable income for the year if applicable, using tax rates enacted or substantively enacted at the balance sheet date.
Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.
8. Dividends
30 June 2019 30 June 2018
------------------------------ -------------------------------
Total Ordinary Total Ordinary
Dividend pence PID dividend GBP'000 pence PID dividend GBP'000
--------------------------- ------------------------ ----- ---- -------- ------- ----- ---- --------- -------
Current year dividends
30 June 2019(1) /2018 Fourth interim dividend 1.56 1.08 0.48 - 1.51 0.94 0.57 -
31 March 2019/2018 Third interim dividend 1.53 1.11 0.42 6,282 1.48 0.92 0.56 5,699
31 December 2018/2017 Second interim dividend 1.53 1.22 0.31 6,282 1.48 1.09 0.39 5,699
30 September 2018/2017 First interim dividend 1.53 1.13 0.40 6,282 1.48 1.07 0.41 5,699
--------------------------- ------------------------ ----- ---- -------- ------- ----- ---- --------- -------
Total 6.15 4.54 1.61 18,846 5.95 4.02 1.93 17,097
----------------------------------------------------- ----- ---- -------- ------- ----- ---- --------- -------
Prior year dividends
30 June 2018/2017 Fourth interim dividend 1.51 0.94 0.57 5,814 1.46 0.95 0.51 5,622
--------------------------- ------------------------ ----- ---- -------- ------- ----- ---- --------- -------
Total 1.51 0.94 0.57 5,814 1.46 0.95 0.51 5,622
----------------------------------------------------- ----- ---- -------- ------- ----- ---- --------- ------- Dividends in statement of changes in equity 24,660 22,719 Movement in withholding tax accrual (87) 54 ----------------------------------------------------- ----- ---- -------- ------- ----- ---- --------- ------- Dividends in statement of cash flows 24,573 22,773 ----------------------------------------------------- ----- ---- -------- ------- ----- ---- --------- -------
1. The fourth interim dividend was declared after the year ended and therefore not accrued for as a provision in the financial statements.
On 1 August 2019, the Company declared a fourth interim dividend of 1.56 pence per ordinary share amounting to GBP6.5 million. The dividend will be paid on 9 September 2019 to shareholders on the register at close of business on 9 August 2019.
As a REIT, the Company is required to pay PIDs equal to at least 90% of the property rental business profits of the Group.
Accounting policy
Dividends due to the Company's shareholders are recognised when they become payable. For interim dividends this is when they are paid.
Part 3. Asset management
This section includes information on the Company's investment portfolio, valuation methodology and its performance over the year. The Group's investment properties are valued at fair value as determined by the external valuer in accordance with the RICS Valuation Global Standards 2017 and IFRS 13.
9. Operating leases
Leases are typically direct let agreements with individual students or HEIs for an academic year or shorter period. The Group also has a small number of leases on commercial areas, teaching and retail spaces and a number of nomination agreements whereby multiple beds are let out for a set number of years. The Company additionally has granted a 21 year lease over its Circus Street asset.
Future minimum rentals receivable under non-cancellable operating leases as at 30 June 2019 are as follows:
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------------------- ------------ ------------
Within one year 46,731 33,683
Between one and five years 46,987 41,806
More than five years 77,221 79,921
--------------------------- ------------ ------------
Total 170,939 155,410
--------------------------- ------------ ------------
Accounting policy
When the Group acts as lessor, it determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, the Group makes an overall assessment of whether the lease transfers substantially all of the risk and rewards incidental to ownership of the underlying asset. If this is the case, then the lease is a finance lease; if not, then it is an operating lease. The Group recognises lease payments received under operating leases as income on a straight-line basis over the lease term.
10. UK investment property
Properties under
construction Leasehold Freehold Total
GBP'000 GBP'000 GBP'000 GBP'000
------------------------------------------------------------------- ---------------- --------- -------- ----------
As at 1 July 2018 30,490 248,460 505,474 784,424
Capital expenditure on properties - 55 4,895 4,950
Land and development expenditure on properties under construction 55,964 - - 55,964
Fair value gains on investment property 11,086 16,136 46,643 73,865
------------------------------------------------------------------- ---------------- --------- -------- ----------
As at 30 June 2019 97,540 264,651 557,012 919,203(1)
------------------------------------------------------------------- ---------------- --------- -------- ----------
As at 1 July 2017 59,100 229,460 346,080 634,640
Acquisition of investment property - - 29,536 29,536
Capital expenditure on properties - 33 23,544 23,577
Land and development expenditure on properties under construction 49,106 - - 49,106
Movement between properties under construction and freehold
properties (79,030) - 79,030 -
Fair value gains on investment property 1,314 18,967 27,284 47,565
------------------------------------------------------------------- ---------------- --------- -------- ----------
As at 30 June 2018 30,490 248,460 505,474 784,424
------------------------------------------------------------------- ---------------- --------- -------- ----------
1. The carrying value of investment property is shown net of lease incentives held as receivables.
During the year, the Group commenced construction of Scape Brighton and continued construction work on Circus Street, Brighton. The properties are included above as properties under construction with a value of GBP42,060,000 and GBP55,480,000 respectively.
In October 2017, the Group entered into a conditional forward purchase agreement to acquire a private student accommodation residence currently under construction immediately adjacent to QMUL. A deposit and related cost of GBP2,648,000 relating to this agreement are included within current assets on the consolidated statement of financial position for the current year and non-current assets for the prior year.
Accounting policy
Investment property comprises property held to earn rental income or for capital appreciation, or both. Investment property is measured initially at cost including transaction costs. Transaction costs include transfer taxes and professional fees to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met.
Subsequent to initial recognition, investment property is stated at fair value in accordance with IFRS 13. Gains or losses arising from changes in the fair values are included in the income statement in the period in which they arise under IAS 40 Investment Property.
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (from lettings and future revenue streams) capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property and discount rates applicable to those assets.
Gains or losses on the disposal of investment property are determined as the difference between net disposal proceeds and the carrying value of the asset.
Investment properties under construction are measured at fair value if the fair value is considered to be reliably determinable. Investment properties under construction for which the fair value cannot be determined reliably but for which the Company expects that the fair value of the property will be reliably determinable when construction is completed, are measured at cost less any impairment until the fair value becomes reliably determinable or construction is completed, whichever is earlier.
Licence fees (where income is receivable from a developer in respect of a forward-funding agreement) are deducted from the cost of investment properties and shown as a receivable until settled.
11. EPRA NIY
Calculated as the value of investment properties divided by annualised net rents:
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------------------------------ ------------ ------------
Investment properties 921,602 784,424
Less: investment property under construction (97,540) (196,500)
------------------------------------------------------ ------------ ------------
Operational property portfolio 824,062 587,924
Allowance for estimated purchasers' costs 25,207 18,578
------------------------------------------------------ ------------ ------------
Operational property portfolio plus purchasers' costs 849,269 606,502
------------------------------------------------------ ------------ ------------
Annualised cash passing rental income 45,675 36,724
Property operating costs (7,159) (6,149)
------------------------------------------------------ ------------ ------------
Annualised net rents 38,516 30,575
Topped-up net annualised rent 38,516 30,575
------------------------------------------------------ ------------ ------------
EPRA NIY 4.54 5.04
EPRA topped-up NIY 4.54 5.04 ------------------------------------------------------ ------------ ------------
Property-related capital expenditure analysis
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------- ------------ ------------
Acquisitions 55,964 78,642
Subsequent capital expenditure 4,950 23,577
------------------------------- ------------ ------------
Total capital expenditure 60,914 102,219
------------------------------- ------------ ------------
Methodology/notes:
Acquisitions: The cost of acquisition of investment properties and capital expenditure in respect of development properties.
Subsequent capital expenditure: Capital expenditure post acquisition includes the costs of refurbishment.
12. EPRA vacancy rate
The Company's buildings were fully occupied for the 2018/19 academic year and for the previous academic year.
13. Fair value
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values.
The fair value of cash and short-term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts due to the short--term maturities of these instruments.
Interest-bearing loans and borrowings are disclosed at amortised cost. The carrying value of the loans and borrowings approximate to their fair value due to the contractual terms and conditions of the loan.
Quarterly valuations of investment property are performed by Knight Frank LLP, an accredited external valuer with recognised and relevant professional qualifications and recent experience of the location and category of the investment property being valued; however the valuations are the ultimate responsibility of the Directors, who appraise these quarterly.
The Group's investment properties are held at fair value as determined by the external valuer in accordance with the RICS Valuation Global Standards 2017 and IFRS 13.
The determination of the fair value of investment property requires the use of estimates such as future cash flows from assets (such as lettings and future revenue streams), the capital values of fixtures and fittings, plant and machinery, any environmental matters and the overall repair and condition of the property and discount rates applicable to those assets.
The following tables show an analysis of the fair values of assets recognised in the statement of financial position by level of the fair value hierarchy(1) :
30 June 2019
-------------------------------------
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ---------- -------
Investment properties - - 921,602(2) 921,602
---------------------------------------------- ------- ------- ---------- -------
Total - - 921,602 921,602
---------------------------------------------- ------- ------- ---------- -------
30 June 2018
-----------------------------------
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- --------
Investment properties - - 784,424 784,424
Total - - 784,424 784,424
---------------------------------------------- ------- ------- ------- --------
1. Explanation of the fair value hierarchy:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 - use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; and
Level 3 - use of a model with inputs that are not based on observable market data.
2. Includes lease incentives held as receivables
Valuation techniques and significant inputs within the valuation of investment properties
The following table analyses:
-- the fair value measurements at the end of the reporting period; -- a description of the valuation techniques applied;
-- the inputs used in the fair value measurement, including the ranges of rent charged to different units within the same building; and
-- for Level 3 fair value measurements, quantitative information about significant unobservable inputs used in the fair value measurement.
Class Fair value Valuation technique Key unobservable inputs Range
------------------------ --------------- ------------------------ ------------------------ -----------------------
Operational student GBP824,062,000 Income capitalisation ERV - 2018/19 GBP165 - GBP651 per bed
property per week
30 June 2019 Rental growth 2% - 3%
Tenancy period 40/51 weeks
Sundry income GBP50 - GBP100 per bed
per annum
Facilities management cost GBP2,100 - GBP2,350 per
bed per annum
Initial yield 4.10% - 5.80% blended
(4.10% - 7.50%)
------------------------------------------------------------------------------------------ -----------------------
Development student GBP97,540,000 Income capitalisation/ RLV GBP19,480,000 -
property GBP34,690,000
30 June 2019 RLV (plus cost spend to Build cost spend to GBP6,722,199 -
date) date GBP36,001,755
Operational student GBP753,934,000 Income capitalisation ERV - 2017/18 GBP165 - GBP465 per bed
property per week
30 June 2018 Rental growth 2.5% - 3.0%
Tenancy period 40/51 weeks
Sundry income GBP50 - GBP100 per bed
per annum
Facilities management cost GBP2,050 - GBP2,250 per
bed per annum
Initial yield 4.5% - 5.75% blended
(4.75% - 7.50%)
------------------------------------------------------------------------------------------ -----------------------
Development student GBP30,490,000 Income capitalisation/ RLV GBP8,640,000
property
30 June 2018 RLV (plus cost spend to Build cost spend to GBP21,853,971
date) date
Sensitivity analysis to significant changes in unobservable inputs within the valuation of investment properties
Significant increases/decreases in the ERV (per sq ft p.a.) and rental growth p.a. in isolation would result in a significantly higher/lower fair value measurement. Significant increases/decreases in the long-term vacancy rate and discount rate (and exit yield) in isolation would result in a significantly lower/higher fair value measurement.
Generally, a change in the assumption made for the ERV (per sq ft p.a.) is accompanied by:
-- a discretionary similar change in the rent growth p.a. and discount rate (and exit yield); and
-- an opposite change in the long-term vacancy rate.
Gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy amount to GBP73,865,000 (2018: GBP47,565,000) and are presented in the income statement in line item 'fair value gains on investment properties'.
All gains and losses recorded in profit or loss for recurring fair value measurements categorised within Level 3 of the fair value hierarchy are attributable to changes in unrealised gains or losses relating to investment property held at the end of the reporting period.
The carrying amount of the Company's other assets and liabilities is considered to approximate their fair value.
14. Events after the reporting period
There were no events after the reporting period which require disclosure.
Part 4. Borrowings and equity
This section includes information on the Company's interest--bearing loans and borrowings, leverage, capital position and exposure to financial risk. The Group manages its capital requirements through a combination of debt and equity.
15. Finance income
30 June 2019 30 June 2018
GBP'000 GBP'000
-------------------------------------------------- ------------ ------------
Income from cash and short-term deposits 33 100
Income from interest-bearing loans and borrowings 1,055 223
-------------------------------------------------- ------------ ------------
Total 1,088 323
-------------------------------------------------- ------------ ------------
Income from interest-bearing loans and borrowings is interest accrued in respect of a loan made to the developer of Scape Brighton; further information is given in note 28.
Accounting policy
Interest income on cash and short-term deposits is recognised on an effective interest rate basis and shown within the income statement as finance income. Interest income from interest-bearing loans and borrowing is accrued at the interest rate per the loan agreement and shown within the income statement as finance income.
16. Finance expenses
30 June 2019 30 June 2018
GBP'000 GBP'000
-------------------------------- ------------ ------------
Bank charges 8 7
Loan interest 7,101 6,863
Loan arrangement fees amortised 619 355
Loan commitment and other fees 676 -
Other 1 15
-------------------------------- ------------ ------------
Total 8,405 7,240
-------------------------------- ------------ ------------
Accounting policy
Any finance costs that are separately identifiable and directly attributable to a liability are amortised as part of the cost of the liability. All other finance costs are expensed in the period in which they occur. Finance costs consist of interest and other costs that an entity incurs in connection with bank and other borrowings.
17. Interest--bearing loans and borrowings
30 June 2019 30 June 2018
GBP'000 GBP'000
----------------------------------------------------------- ------------ ------------
Borrowings at the start of the year 235,000 220,000
Borrowings drawn down during the year 34,620 15,000
Borrowings repaid during the year (17,470) -
----------------------------------------------------------- ------------ ------------
Borrowings at the end of the year 252,150 235,000
----------------------------------------------------------- ------------ ------------
Unamortised loan arrangement fees at the start of the year (2,229) (2,531)
Amortised during the year 619 355
Loan arrangement fees incurred in the year (1,429) (53)
----------------------------------------------------------- ------------ ------------
Unamortised loan arrangement fees at the end of the year (3,039) (2,229)
----------------------------------------------------------- ------------ ------------
Borrowings less unamortised loan arrangement fees 249,111 232,771
----------------------------------------------------------- ------------ ------------
The Group has debt facilities of GBP335 million, comprising the following:
Fixed-rate secured facilities totalling GBP235 million with PGIM:
Amount Facility Interest rate % Maturity --------------- -------- --------------- --------------- GBP130,000,000 1 3.07 September 2024 GBP40,000,000 1 2.83 September 2024 GBP65,000,000 2 2.82 April 2029 --------------- -------- --------------- ---------------
Secured credit facilities totalling GBP100 million with Wells Fargo:
Amount Facility Interest rate % Maturity ------------- -------------------------- --------------- ---------------------- GBP45,000,000 Redrawable credit facility LIBOR + 1.85 July 2021 GBP55,000,000 Development loan LIBOR + 3.10 December 2021 + 1 year ------------- -------------------------- --------------- ----------------------
As at 30 June 2019, GBP17,150,000 had been drawn down on the redrawable credit facility.
The Group uses gearing to seek to enhance returns over the long term and for the purpose of funding acquisitions in line with the Company's investment policy. The level of gearing is governed by careful consideration of the cost of borrowing.
The debt facilities include gearing and interest cover covenants that are measured in accordance with the respective facility agreement. The Group has maintained significant headroom against all measures throughout the financial year and is in full compliance with all loan covenants at 30 June 2019.
30 June 2019 30 June 2018
Reconciliation of financing liabilities GBP'000 GBP'000
---------------------------------------- ------------ ------------
Balance at the start of the year 232,771 217,469
Changes from cash flows
Borrowings drawn down 34,620 15,000
Borrowings repaid (17,470) -
Loan arrangement fees (1,429) (53)
Non-cash changes
Amortisation of loan issue costs 619 355
---------------------------------------- ------------ ------------
Balance at the end of the year 249,111 232,771
---------------------------------------- ------------ ------------
Leverage
For the purposes of the AIFMD, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its NAV and is calculated under the gross and commitment methods, in accordance with AIFMD.
The Company is required to state its maximum and actual leverage levels, calculated as prescribed by AIFMD, and as at 30 June 2019, the figures are as follows:
Leverage exposure Maximum limit Actual exposure ------------------ -------------- --------------- Gross method 155% 135% Commitment method 155% 137% ------------------ -------------- ---------------
Accounting policy
Loans and borrowings are initially recognised as the proceeds received net of directly attributable transaction costs. Loans and borrowings are subsequently measured at amortised cost with interest charged to the income statement at the effective interest rate and shown within finance costs. Transaction costs are spread over the term of loan.
18. Share capital
30 June 30 June
Number Issued 2019 2018
of shares Share price GBP'000 GBP'000
----------------------------------- ---------- ----------- ------- -------
Issued and fully paid:
At the start of the year 3,851 3,358
Shares issued on 7 July 2017 49,295,774 142.00p - 493
Shares issued on 25 September 2018 25,512,151 149.50p 255 -
Shares issued on 4 June 2019 3,076,923 162.50p 31 -
Balance at the end of the year 4,137 3,851
The share capital comprises one class of ordinary shares. At general meetings of the Company, ordinary shareholders are entitled to one vote on a show of hands and on a poll, to one vote for every share held. There are no restrictions on the size of a shareholding or the transfer of shares, except for the UK REIT restrictions.
19. Share premium
30 June 2019 30 June 2018
GBP'000 GBP'000
----------------------------------- ------------ ------------
At the start of the year 408,617 340,233
Shares issued on 7 July 2017 - 69,507
Shares issued on 25 September 2018 37,885 -
Shares issued on 4 June 2019 4,969 -
Share issue costs (813) (1,123)
----------------------------------- ------------ ------------
Balance at the end of the year 450,658 408,617
----------------------------------- ------------ ------------
20. Capital and reserves
Share capital
Share capital is the nominal amount of the Company's ordinary shares in issue.
Share premium
Share premium relates to amounts subscribed for share capital in excess of nominal value less associated issue costs of the subscriptions.
Share premium comprises the following cumulative amounts:
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------------------- ------------ ------------
Issue of share capital 527,437 484,583
Share issue costs (9,421) (8,608)
Cancelled share premium(1) (67,358) (67,358)
--------------------------- ------------ ------------
Share premium 450,658 408,617
--------------------------- ------------ ------------
1. On 31 July 2013, the Company, by way of special resolution, cancelled the value of its share premium account, by an Order of the High Court of Justice, Chancery Division. As a result of this cancellation, GBP67.4 million was transferred from share premium to retained earnings in the financial period ended 30 June 2014.
Special reserve
The special reserve represents the cancelled share premium less dividends paid from this reserve.
The special reserve comprises the following cumulative amounts:
30 June 2019 30 June 2018
GBP'000 GBP'000
----------------------------- ------------ ------------
Cancelled share premium 67,358 67,358
Dividends paid from reserves (28,599) (22,861)
----------------------------- ------------ ------------
Special reserve 38,759 44,497
----------------------------- ------------ ------------
Retained earnings
Retained earnings represent the profits of the Group less dividends paid from revenue profits to date. Unrealised gains on the revaluation of investment properties contained within this reserve are not distributable until they crystallise on the sale of the investment property.
Retained earnings comprise the following cumulative amounts:
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------------------------ ------------ ------------
Total unrealised gains on investment properties 191,109 117,245
Total revenue profits 53,527 34,605
Dividends paid from revenue profits (53,527) (34,605)
------------------------------------------------ ------------ ------------
Retained earnings 191,109 117,245
------------------------------------------------ ------------ ------------
21. Capital management
The Group's capital is represented by share capital, reserves and borrowings.
The primary objective of the Group's capital management is to ensure that it remains within its quantitative banking covenants and maintains a strong credit rating. No changes were made in the objectives, policies or processes during the period.
The Group may use gearing to enhance returns over the long term. The level of gearing will be governed by careful consideration of the cost of borrowing and the Group may use hedging or otherwise seek to mitigate the risk of interest rate increases. As at the year end, the Group was operating with a loan-to-value of 26% (30 June 2018: 26%).
The debt facilties include gearing and interest cover covenants that are measured in accordance with the respective facility agreement. The Group has maintained significant headroom against all measures throughout the financial year and is in full compliance with all loan covenants at 30 June 2019.
22. Financial risk management objectives and policies
The Company's principal financial liabilities are long-term liabilities and borrowings. The main purpose of the Company's loans and borrowings is to finance the acquisition of the Company's property portfolio. The Company has trade and other receivables, trade and other payables, and cash and short-term deposits that arise directly from its operations.
The Company is exposed to market risk, interest rate risk, credit risk and liquidity risk. The Board of Directors reviews and agrees policies for managing each of these risks, which are summarised below.
Market risk
Market risk is the risk that future values of investments in property and related investments will fluctuate due to changes in market prices. The total exposure at the statement of financial position date is GBP921,602,000 and, to manage this risk, the Group diversifies its portfolio across a number of assets.
Market risk is also the risk that the fair values of financial instruments will fluctuate because of changes in market prices. See principal risks above where market risk is discussed in more detail.
Interest rate risk
Interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's exposure to the risk of changes in market interest rates is minimal as it has taken out the majority of the debt as fixed rate bank loans of GBP170,000,000 with a maturity of September 2024 and GBP65,000,000 with a maturity of April 2029.
The Company also has a variable rate facility of up to GBP100,000,000, of which GBP17,200,000 has been drawn down.
Liquidity risk
Liquidity risk is defined as the risk that the Group will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Group could be required to pay its liabilities earlier than expected. The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of bank deposits and loans.
The table below summarises the maturity profile of the Group's financial liabilities based on contractual undiscounted payments:
Less Three
than three to twelve One to Two to More than
months months two years five years five years Total
Year ended 30 June 2019 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- --------- --------- ---------- ---------- -------
Interest-bearing loans and borrowings 1,868 5,563 24,561 20,868 244,622 297,482
Trade and other payables 4,829 1,058 - - - 5,887
Retention account - - 308 - - 308
-------------------------------------- ---------- --------- --------- ---------- ---------- -------
Total 6,697 6,621 24,869 20,868 244,622 303,677
-------------------------------------- ---------- --------- --------- ---------- ---------- -------
Less Three
than three to twelve One to Two to More than
months months two years five years five years Total
Year ended 30 June 2018 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------------------------------------- ---------- --------- --------- ---------- ---------- --------
Interest-bearing loans and borrowings - 5,222 6,956 20,868 257,556 290,602
Trade and other payables 6,371 1,812 - - - 8,183
Retention account - - 308 - - 308
-------------------------------------- ---------- --------- --------- ---------- ---------- --------
Total 6,371 7,034 7,264 20,868 257,556 299,093
-------------------------------------- ---------- --------- --------- ---------- ---------- --------
Part 5. Working capital
This section includes information on the Company's cash reserves and working capital management, including trade receivables and payables.
23. Cash and cash equivalents
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------------- ------------ ------------
Cash and cash equivalents 4,987 19,255
Subsidiary cash and cash equivalents 10,522 9,958
------------------------------------- ------------ ------------
Total 15,509 29,213
------------------------------------- ------------ ------------
Accounting policy
Cash and cash equivalents comprise cash at bank and short--term deposits with banks and other financial institutions, with an initial maturity of three months or less.
24. Trade and other receivables
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------------------- ------------ ------------
Prepayments 820 548
Rent receivable 1,543 538
Cash held by rental agents 2,530 3,989
Licence fees 2,924 661
Lease incentives 2,399 2,614
Receivable from developer 3,631 -
Other receivables 747 655
--------------------------- ------------ ------------
Total 14,594 9,005
--------------------------- ------------ ------------
Credit risk
Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its leasing activities and its financing activities, including deposits with banks and financial institutions.
Credit risk is managed by requiring tenants to pay rentals in advance. The credit quality of the tenant is assessed at the time of entering into a lease agreement. Outstanding tenants' receivables are regularly monitored. The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial asset.
The following table analyses the Group's exposure to credit risk:
30 June 2019 30 June 2018
GBP'000 GBP'000
---------------------------- ------------ ------------
Retention account 308 308
Cash and cash equivalents 15,509 29,213
Trade and other receivables 17,242 11,653
---------------------------- ------------ ------------
Total 33,059 41,174
---------------------------- ------------ ------------
The retention account and cash and cash equivalents are held with Barclays Bank PLC, which holds an A-1 credit rating.
Accounting policy
Trade and other receivables are recognised initially at fair value and subsequently carried at amortised cost less provision for impairment. Where the time value of money is material, receivables are carried at amortised cost using the effective interest method. Impairment provisions are recognised based on the expected credit loss model detailed within IFRS 9.
The Group recognises a loss allowance for expected credit losses ("ECL") on trade and other receivables where necessary. The loss allowance is based on lifetime expected credit losses. The amount of expected credit losses is updated at each reporting date to reflect changes in credit risk since initial recognition. The expected credit losses on these financial assets are estimated based on the Group's historical credit loss experience, adjusted for factors that are specific to the debtors, general economic conditions and an assessment of both the current as well as the forecast direction of conditions at the reporting date. Impaired balances are reported net, however impairment provisions are recorded within a separate provision account with the loss being recognised within administration costs within the consolidated statement of comprehensive income. On confirmation that the trade receivable will not be collectable the gross carrying value of the asset is written off against the associated provision.
Licence fees represent income receivable from a developer in respect of a forward-funding agreement which is deducted from the cost of investment and shown as a receivable until settled.
Lease incentives including rent-free periods and payments to tenants are allocated to the statement of comprehensive income on a straight-line basis over the lease term.
25. Payables and accrued expenses
30 June 2019 30 June 2018
GBP'000 GBP'000
---------------------------- ------------ ------------
Property operating expenses 1,032 968
Finance expenses 936 762
Other expenses 3,919 6,453
---------------------------- ------------ ------------
Trade and other payables 5,887 8,183
Deferred income 12,293 10,126
---------------------------- ------------ ------------
Total 18,180 18,309
---------------------------- ------------ ------------
Accounting policy
Payables and accrued expenses are initially recognised at fair value and subsequently held at amortised cost.
Deferred income is rental income received in advance during the accounting period. The income is deferred and is unwound to revenue on a straight--line basis over the period in which it is earned.
Part 6. Staff and key management
The following pages detail wages and salaries of the Group.
26. Directors' remuneration
30 June 2019 30 June 2018
GBP'000 GBP'000
---------------- ------------ ------------
Robert Peto 48 47
Gillian Day 38 13
Peter Dunscombe 13 37
David Hunter 6 -
Malcolm Naish 38 37
Marlene Wood 43 42
Total 186 176
---------------- ------------ ------------
A summary of the Directors' emoluments, including the disclosures required by the Companies Act 2006, is set out in the Directors' remuneration report in the full Annual Report.
27. Staff costs
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------- ------------ ------------
Salaries 3,163 2,749
Other benefits 95 40
--------------- ------------ ------------
Total 3,258 2,789
--------------- ------------ ------------
With the exception of the Directors, whose remuneration is shown in the Directors' remuneration report in the full Annual Report, as at 30 June 2019, the Group employed 124 (2018: 128) members of staff, with an average of 117 (2018: 112) employees during the year.
The Group operates a defined contributions pension scheme for 83 (2018: 76) of its employees. The costs for the year ended 30 June 2019 totalled GBP40,000 (30 June 2018: GBP29,000).
28. Related party transactions
Directors
The Directors (all non-executive Directors) of the Company and subsidiaries are considered to be the key management personnel of the Group. Directors' remuneration for the year totalled GBP186,000 (2018: GBP176,000) and at 30 June 2019, a balance of GBPnil (2018: GBPnil) was outstanding. Further information is given in note 26. The Directors of the Company are also the directors of all subsidiaries apart from GCP Operations Limited where the directors are representatives from the Investment Manager and Scape.
Investment Manager
From its investment management fee the Investment Manager is responsible for the payment of annual asset and facilities management fees of up to 0.25% of the Group's NAV, including fees payable to Scape.
The investment management agreement also appoints the Investment Manager as the Company's AIFM and it receives an annual fee of GBP25,000, subject to an annual RPI increases.
The Investment Manager also receives a fee of 0.30% of the aggregate gross proceeds from any issue of new shares in consideration for the provision of marketing and investor introduction services. The Investment Manager has appointed Highland Capital Partners Limited to assist it with the provision of such services and pays all fees due to Highland Capital Partners Limited out of the fees it receives from the Company.
During the year, the Group incurred GBP6,582,000 (2018: GBP5,698,000) in respect of investment management fees, the AIFM fee and marketing and investor introduction services. A total of GBP6,455,000 (2018: GBP5,488,000) is included within administration expenses in the consolidated income statement and GBP127,000 (2018: GBP210,000) is included within the share issue costs relating to shares issued during the year; at 30 June 2019, GBP1,707,000 (2018: GBP1,437,000) was outstanding.
Transactions with persons connected to the Investment Manager
The following transactions are disclosed for the purpose of transparency and are not required to be disclosed as related party transactions under IAS 24.
On 25 July 2018, the Group entered into a conditional contract with Scaperfield Limited to acquire and forward-fund the construction of Scape Brighton. The Company completed the acquisition of Scape Brighton on 22 May 2019. The directors of the Investment Manager and their family members, directly or indirectly, own in aggregate approximately 80% of Scaperfield Limited. Included within investment properties on the consolidated statement of financial position is an amount of GBP39.0 million consisting of the purchase price and further development costs paid to Scaperfield Limited. Interest of GBP1.1 million has been accrued on a part of the purchase price which was advanced as a loan prior to acquisition and is included within finance income in the consolidated statement of comprehensive income.
On 2 May 2019, the Company entered into a conditional forward purchase agreement with Kernal Court Limited to acquire a high specification, purpose-built, private student accommodation residence in the same locality as its Scape Surrey asset in Guildford. The directors of the Investment Manager and their family members, directly or indirectly, own in aggregate approximately 40% of Kernel Court Limited.
The Company benefits from a future contractual arrangement to acquire Scape Canalside . The directors of the Investment Manager and their family members, directly or indirectly, owned in aggregate approximately 45% of Leopard Guernsey Westway Limited, the vendor of Scape Canalside.
Each of the above assets has been or will be acquired, as appropriate, on the basis of an independent valuation and approval by the independent Board of Directors.
Part 7. Company subsidiaries
This section includes information on the subsidiaries of the Company and inter--company transactions. All subsidiaries are consolidated from the date on which the Company obtained control of the entity.
29. Subsidiaries
The financial statements comprise the financial statements of the Company and its subsidiaries listed below.
Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Group obtained control, and will continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. All intra-group balances, transactions, unrealised gains and losses resulting from intra-group transactions and distributions are eliminated in full. The Company has a 100% beneficial interest (whether directly or indirectly), in the issued share capital of all subsidiaries.
Profit after
Place of Number and Capital and tax for the
registration, class of shares reserves at year ended
incorporation held by 30 June 2019 30 June 2019
Company and operation the Group Group holding GBP'000 GBP'000
--------------------------- --------------- --------------------------- ------------- ------------- -------------
GCP Bloomsbury Limited(1,2) UK 8 ordinary shares 100% 91,820 20,945
GCP Brighton Limited(2) UK 4 ordinary shares 100% 43,467 10,851
1,046,728,191 ordinary
GCP Brunswick Limited(1,2) UK shares 100% 15,342 430
GCP Holdco Limited(1,2) UK 5 ordinary shares 100% 382,050 48,680
GCP Holdco 2 Limited(1,2) UK 14 ordinary shares 100% 134,717 26,889
GCP Holdco 3 Limited(2) UK 6 ordinary shares 100% 126,919 11,112
GCP Makerfield Limited(1,2) UK 4 ordinary shares 100% 22,453 453
GCP Operations Limited(2) UK 2 ordinary shares 100% 150 150
GCP QMUL Limited(2) UK 4 ordinary shares 100% 2,548 (16)
GCP RHUL Limited(1,2) UK 4 ordinary shares 100% 19,864 (321)
GCP RHUL 2 Limited(1,2) UK 4 ordinary shares 100% 19,170 2,594
GCP Scape East Limited(1,2) UK 51,508,283 ordinary shares 100% 117,644 20,694
GCP SG Limited(1,2) UK 4 ordinary shares 100% 29,535 4,364
GCP Surrey 2 Limited(2) UK 2 ordinary shares 100% - -
GCP Topco Limited(2) UK 3 ordinary shares 100% 382,001 48,665
GCP Topco 2 Limited(2) UK 14 ordinary shares 100% 134,689 26,887
GCP WL Limited(1,2) UK 3 ordinary shares 100% 23,922 3,374
GCP Wembley Limited(1,2) UK 12 ordinary shares 100% 104,082 10,674
GCP Wembley 2 Limited(1,2) UK 2 ordinary shares 100% 402 224
GCP Greenwich Limited(1,3) Guernsey 102 ordinary shares 100% 39,171 4,774
GCP Greenwich 2
Limited(1,3) Guernsey 102 ordinary shares 100% 1,383 115
GCP Greenwich JV
Limited(1,3) Guernsey 103 ordinary shares 100% 65,506 4,862
GCP Old Street Limited(1,3) Guernsey 100 ordinary shares 100% 139,623 18,914
GCP Old Street 2
Limited(1,3) Guernsey 100 ordinary shares 100% 1,498 410
GCP Old Street Acquisitions
Limited(1,3) Guernsey 450 A ordinary shares 100% 138,927 19,232
550 B ordinary shares
----------------------------------------------------------------------- ------------- ------------- -------------
1. Indirect subsidiaries.
2. Registered office: Beaufort House, 51 New North Road, Exeter EX4 4EP.
3. Registered office: Hirzel House, Smith Street, St Peter Port, Guernsey GY1 2NG.
Accounting policy
Where property is acquired, via corporate acquisition or otherwise, management considers the substance of the assets and activities of the acquired entity in determining whether the acquisition represents the acquisition of a business.
Where such acquisitions are not judged to be an acquisition of a business, they are not treated as business combinations. Rather, the cost to acquire the corporate entity is allocated between the identifiable assets and liabilities of the entity based on their relative fair values at the acquisition date. Accordingly, no goodwill or additional deferred taxation arises. Otherwise, acquisitions are accounted for as business combinations.
Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value and the amount of any non-controlling interest in the acquiree.
For each business combination, the acquirer measures the non-controlling interest in the acquiree at fair value of the proportionate share of the acquiree's identifiable net assets. Acquisition costs (except for costs of issue of debt or equity) are expensed in accordance with IFRS 3 Business Combinations.
When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date.
Contingent consideration is deemed to be equity or a liability in accordance with IAS 32. If the contingent consideration is classified as equity, it is not re--measured and its subsequent settlement shall be accounted for within equity. If the contingent consideration is classified as a liability, subsequent changes to the fair value are recognised in profit or loss.
30. Ultimate controlling party
It is the view of the Directors that there is no ultimate controlling party.
COMPANY STATEMENT OF FINANCIAL POSITION
As at 30 June 2019
30 June 2019 30 June 2018
Notes GBP'000 GBP'000
----------------------------------- ----- ------------ ------------
Assets
Non-current assets
Investment in subsidiary companies 3 689,760 578,439
----------------------------------- ----- ------------ ------------
689,760 578,439
----------------------------------- ----- ------------ ------------
Current assets
Cash and cash equivalents 4 4,987 19,255
Trade and other receivables 5 68,233 42,470
----------------------------------- ----- ------------ ------------
73,220 61,725
----------------------------------- ----- ------------ ------------
Total assets 762,980 640,164
----------------------------------- ----- ------------ ------------
Liabilities
Current liabilities
Trade and other payables 6 (78,317) (65,954)
----------------------------------- ----- ------------ ------------
Total liabilities (78,317) (65,954)
----------------------------------- ----- ------------ ------------
Net assets 684,663 574,210
----------------------------------- ----- ------------ ------------
Equity
Share capital 4,137 3,851
Share premium 450,658 408,617
Special reserve 38,759 44,497
Retained earnings 191,109 117,245
----------------------------------- ----- ------------ ------------
Total equity 684,663 574,210
----------------------------------- ----- ------------ ------------
Number of shares in issue 413,653,630 385,064,556
NAV per share (pps) 165.52 149.12
----------------------------------- ----- ------------ ------------
The comprehensive income of the Company was GBP92,786,000 (2018: GBP61,058,000).
The financial statements were approved by the Board of Directors of GCP Student Living plc on 3 September 2019 and signed on its behalf by:
Robert Peto
Chairman
Company number: 08420243
COMPANY STATEMENT OF CHANGES IN EQUITY
For the year ended 30 June 2019
Share Share Special Retained
capital premium reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ------- -------- ------- -------- --------
Balance at 1 July 2018 3,851 408,617 44,497 117,245 574,210
----------------------------------------------- ------- -------- ------- -------- --------
Total comprehensive income - - - 92,786 92,786
Ordinary shares issued 286 42,854 - - 43,140
Share issue costs - (813) - - (813)
Dividends paid in respect of the previous year - - (2,508) (3,306) (5,814)
Dividends paid in respect of the current year - - (3,230) (15,616) (18,846)
----------------------------------------------- ------- -------- ------- -------- --------
Balance at 30 June 2019 4,137 450,658 38,759 191,109 684,663
----------------------------------------------- ------- -------- ------- -------- --------
Company statement of changes in equity
For the year ended 30 June 2018
Share Share Special Retained
capital premium reserve earnings Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
----------------------------------------------- ------- -------- -------- --------- ---------
Balance at 1 July 2017 3,358 340,233 53,576 69,827 466,994
----------------------------------------------- ------- -------- -------- --------- ---------
Total comprehensive income - - - 61,058 61,058
Ordinary shares issued 493 69,507 - - 70,000
Share issue costs - (1,123) - - (1,123)
Dividends paid in respect of the previous year - - (3,300) (2,322) (5,622)
Dividends paid in respect of the current year - - (5,779) (11,318) (17,097)
----------------------------------------------- ------- -------- -------- --------- ---------
Balance at 30 June 2018 3,851 408,617 44,497 117,245 574,210
----------------------------------------------- ------- -------- -------- --------- ---------
COMPANY STATEMENT OF CASH FLOWS
For the year ended 30 June 2019
30 June 2019 30 June 2018
Notes GBP'000 GBP'000
---------------------------------------------------------------- ----- ------------ ------------
Cash flows from operating activities
Operating profit 92,776 60,965
Adjustments to reconcile profit for the year to net cash flows:
Gains from change in fair value of subsidiary companies (88,922) (59,447)
Dividends received from subsidiary companies (8,701) (6,067)
Net recharges from subsidiary companies (3,412) (2,556)
Increase in other receivables and prepayments (64) (46)
Increase in other payables and accrued expenses 224 221
---------------------------------------------------------------- ----- ------------ ------------
Net cash flow used in operating activities (8,099) (6,930)
---------------------------------------------------------------- ----- ------------ ------------
Cash flows from investing activities
Acquisition of subsidiaries 3 (22,399) (72,305)
Net cash (paid)/received from subsidiary companies (1,549) 26,484
---------------------------------------------------------------- ----- ------------ ------------
Net cash used in investing activities (23,948) (45,821)
---------------------------------------------------------------- ----- ------------ ------------
Cash flows from financing activities
Proceeds from issue of ordinary share capital 43,140 70,000
Share issue costs (813) (1,123)
Finance income 29 99
Finance expenses (4) (5)
Dividends paid in the year (24,573) (22,773)
---------------------------------------------------------------- ----- ------------ ------------
Net cash flow generated from financing activities 17,779 46,198
---------------------------------------------------------------- ----- ------------ ------------
Net decrease in cash and cash equivalents (14,268) (6,553)
Cash and cash equivalents at start of the year 19,255 25,808
---------------------------------------------------------------- ----- ------------ ------------
Cash and cash equivalents at end of the year 4 4,987 19,255
---------------------------------------------------------------- ----- ------------ ------------
Non-cash items
Investment in GCP Brighton Limited - (14,567)
Transfer of GCP Wembley Limited to Holdco 3 Limited (93,408) -
Investment in GCP Holdco 3 Limited 93,408 -
---------------------------------------------------------------- ----- ------------ ------------
NOTES TO THE COMPANY FINANCIAL STATEMENTS
For the year ended 30 June 2019
1. General information
GCP Student Living plc is a REIT incorporated in England and Wales on 26 February 2013. The registered office of the Company is located at 51 New North Road, Exeter EX4 4EP. The Company's shares are listed on the Premium Segment of the Main Market of the London Stock Exchange.
2. Basis of preparation
These financial statements are prepared in accordance with IFRS issued by the IASB as adopted by the European Union. The financial statements have been prepared under the historical cost convention, except for investments in subsidiaries that have been measured at fair value. The audited financial statements are presented in Pound Sterling and all values are rounded to the nearest thousand pounds (GBP'000), except when otherwise indicated.
These financial statements are for the year ended 30 June 2019. Comparative figures are for the previous accounting period, the year ended 30 June 2018.
The Company has taken advantage of the exemption in section 408 of the Companies Act 2006 not to present its own income statement or statement of comprehensive income.
The financial statements of the Company follow the accounting policies laid out above.
3. Investment in subsidiary companies
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------------------------------------ ------------ ------------
At the beginning of the year 578,439 432,120
Investment in subsidiary companies 22,399 86,872
Total 600,838 518,992
Fair value gains on the revaluation of subsidiary companies 88,922 59,447
------------------------------------------------------------ ------------ ------------
Total 689,760 578,439
------------------------------------------------------------ ------------ ------------
30 June 2019 30 June 2018
GBP'000 GBP'000
--------------------------------------------------- ------------ ------------
Investments in subsidiary companies
GCP Wembley Limited - 18,000
GCP Topco 2 Limited - 35,000
GCP Brighton Limited - 31,302
GCP QMUL Limited - 2,570
GCP Holdco 3 Limited 115,807 -
--------------------------------------------------- ------------ ------------
Total 115,807 86,872
--------------------------------------------------- ------------ ------------
Cash items included in the statement of cash flows
GCP Wembley Limited - 18,000
GCP Topco 2 Limited - 35,000
GCP Brighton Limited - 16,735
GCP QMUL Limited - 2,570
GCP Holdco 3 Limited 22,399 -
--------------------------------------------------- ------------ ------------ Total 22,399 72,305 --------------------------------------------------- ------------ ------------
Cash items included in the statement of cash flows comprise share purchases in the above entities.
During the year the investment in GCP Wembley Limited was transferred from GCP Student Living plc to GCP Holdco 3 Limited in a share--for--share exchange valued at GBP93.4 million.
Accounting policy
Investments in subsidiary companies which are all 100% owned by the Company are valued at NAV, which is equivalent to fair value.
Changes in fair value of investments and gains on the sale of investments are recognised as they arise in the Company statement of comprehensive income.
4. Cash and cash equivalents
30 June 2019 30 June 2018
GBP'000 GBP'000
-------------------------- ------------ ------------
Cash and cash equivalents 4,987 19,255
Total 4,987 19,255
-------------------------- ------------ ------------
Accounting policy
Cash and cash equivalents comprise cash at bank and short--term deposits with banks and other financial institutions, with an initial maturity of three months or less.
5. Trade and other receivables
30 June 2019 30 June 2018
GBP'000 GBP'000
-------------------------------------- ------------ ------------
Amounts due from subsidiary companies 68,128 42,430
Prepayments and other receivables 105 40
-------------------------------------- ------------ ------------
Total 68,233 42,470
-------------------------------------- ------------ ------------
6. Other payables and accrued expenses
30 June 2019 30 June 2018
GBP'000 GBP'000
------------------------------------ ------------ ------------
Amounts due to subsidiary companies 75,953 63,903
Other expenses payable 2,364 2,051
------------------------------------ ------------ ------------
Total 78,317 65,954
------------------------------------ ------------ ------------
7. Fair value
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used to estimate the fair values.
The fair value of cash and short--term deposits, trade receivables, trade payables and other current liabilities approximate their carrying amounts due to the short--term maturities of these instruments.
The valuation of subsidiaries is based on NAV. The NAV of the subsidiaries are based on fair values of the assets held by the subsidiary, see note 13 to the consolidated financial statements for details of underlying asset fair values. The valuations are the ultimate responsibility of the Directors, who appraise these quarterly.
The following tables show an analysis of the fair values of financial instruments recognised in the statement of financial position by level of the fair value hierarchy(1) :
30 June 2019
----------------------------------
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- -------
Investment in subsidiaries - - 689,760 689,760
---------------------------------------------- ------- ------- ------- -------
Total - - 689,760 689,760
---------------------------------------------- ------- ------- ------- -------
30 June 2018
-----------------------------------
Level 1 Level 2 Level 3 Total
Assets and liabilities measured at fair value GBP'000 GBP'000 GBP'000 GBP'000
---------------------------------------------- ------- ------- ------- --------
Investment in subsidiaries - - 578,439 578,439
---------------------------------------------- ------- ------- ------- --------
Total - - 578,439 578,439
---------------------------------------------- ------- ------- ------- --------
1. Explanation of the fair value hierarchy:
Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date;
Level 2 - use of a model with inputs (other than quoted prices included in Level 1) that are directly or indirectly observable market data; and
Level 3 - use of a model with inputs that are not based on observable market data.
8. Related party transactions
The tables below disclose the transactions and balances between the Company and subsidiary entities:
30 June 2019 30 June 2018
Transactions GBP'000 GBP'000
------------------------------------- ------------ ------------
Recharges of fund level expenses to:
GCP Bloomsbury Limited 703 526
GCP Brighton Limited 190 81
GCP Brunswick Limited 4 4
GCP Greenwich 2 Limited 230 176
GCP Holdco Limited 5 5
GCP Holdco 2 Limited 5 5
GCP Holdco 3 Limited 9 -
GCP Makerfield Limited 53 -
GCP Old Street 2 Limited 780 616
GCP Operations Limited 10 10
GCP QMUL Limited 8 -
GCP RHUL Limited 138 124
GCP RHUL 2 Limited 125 80
GCP Scape East Limited 570 454
GCP SG Limited 111 88
GCP Topco Limited 5 5
GCP Topco 2 Limited 5 5
GCP Wembley 2 Limited 375 305
GCP WL Limited 88 70
------------------------------------- ------------ ------------
30 June 2019 30 June 2018
Balances GBP'000 GBP'000
------------------------------------------- ------------ ------------
Other intercompany balances due (to)/from:
GCP Brighton Limited 18,794 (1,304)
GCP Holdco 3 Limited (5,533) -
GCP Makerfield Limited 4,808 -
GCP Operations Limited (142) (137)
GCP QMUL Limited 98 80
GCP RHUL 2 Limited 21 20
GCP Surrey 2 Limited 68 -
GCP Topco Limited (65,861) (57,960)
GCP Topco 2 Limited 44,339 42,255
GCP Wembley Limited (2,047) (3,834)
GCP Wembley 2 Limited (1,443) 335
GCP WL Limited (927) (928)
------------------------------------------- ------------ ------------
SHAREHOLDER INFORMATION
Key dates
September Annual results announced
Payment of fourth interim dividend
November Annual general meeting December Company's half--year end
Payment of first interim dividend
March Half--yearly results announced
Payment of second interim dividend
June Company's year end
Payment of third interim dividend
Frequency of NAV publication
The Company's NAV is released via RNS to the London Stock Exchange on a quarterly basis and is published on the Company's website.
Sources of further information
Copies of the Company's annual and half-yearly reports, stock exchange announcements and further information on the Company can be obtained from the Company's website: www.gcpstudent.com.
Warning to the user of this report
This report is intended solely for the information of the person to whom it is provided by the Company, the Investment Manager or the Administrator. This report is not intended as an offer or solicitation for the purchase of shares in the Company and should not be relied on by any person for the purpose of accounting, legal or tax advice or for making an investment decision. The payment of dividends and the repayment of capital are not guaranteed by the Company. Any forecast, projection or target is indicative only and not guaranteed in any way, and any opinions expressed in this report are not statements of fact and are subject to change, and neither the Company nor the Investment Manager is under any obligation to update such opinions.
Past performance is not a reliable indicator of future performance, and investors may not get back the original amount invested. Unless otherwise stated, the sources for all information contained in this report are the Investment Manager and the Administrator. Information contained in this report is believed to be accurate at the date of publication, but none of the Company, the Investment Manager and the Administrator gives any representation or warranty as to the report's accuracy or completeness. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation. None of the Company, the Investment Manager and the Administrator accepts any liability whatsoever for any loss (whether direct or indirect) arising from any use of this report or its contents.
Electronic communications from the Company
Shareholders now have the opportunity to be notified by email when the Company's annual reports, half-yearly reports and other formal communications are available on the Company's website, instead of receiving printed copies by post. This has environmental benefits in the reduction of paper, printing, energy and water usage, as well as reducing costs to the Company. If you have not already elected to receive electronic communications from the Company and wish to do so, visit www.signalshares.com. To register, you will need your investor code, which can be found on your share certificate or your dividend tax voucher.
Alternatively, you can contact Link's Customer Support Centre, which is available to answer any queries you have in relation to your shareholding:
By phone: from the UK, call 0871 664 0300; from overseas call +44 (0) 371 664 0300 (calls cost 12 pence per minute plus your phone company's access charge. Calls outside the UK will be charged at the applicable international rate. Link is open between 09:00 - 17:30, Monday to Friday excluding public holidays in England and Wales).
By email: enquiries@linkgroup.co.uk
By post: Link Asset Services, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TU.
ANNUAL GENERAL MEETING
The Company's annual general meeting will be held at the offices of Gowling WLG (UK) LLP, 4 More London Riverside, London SE1 2AU at 12.00 noon on Wednesday, 6 November 2019.
The notice of this meeting will be circulated to shareholders with the full annual report and financial statements and will also be available at www.gcpstudent.com.
NATIONAL STORAGE MECHANISM
A copy of the annual report and financial statements and notice of annual general meeting will be submitted shortly to the National Storage Mechanism ("NSM") and will be available for inspection at the NSM, which is situated at www.morningstar.co.uk/uk/NSM.
Glossary
Adjusted EPS EPS adjusted for exceptional items and licence fees receivable on forward-funded
developments
(refer to note 3)
AIC Association of Investment Companies
AIC Code AIC Code of Corporate Governance, as published in July 2016
AIC Guide AIC Corporate Governance Guide for Investment Companies
AIFM Alternative Investment Fund Manager
AIFMD Alternative Investment Fund Managers Directive
Annualised total shareholder Total shareholder return expressed as a weighted annual percentage. Calculated with
return since IPO reference
to the IPO issue price of 100 pence per ordinary share
APM Alternative performance measure
BAFE British Approvals for Fire Equipment (UK)
CIL Community Infrastructure Levy
City City, University of London
Collegiate Collegiate Accommodation Consulting Limited - Asset and Facilities Manager for Water
Lane
Apartments, Bristol
Company or GCP Student GCP Student Living plc
Cost of borrowing Cost of borrowing expressed as a percentage weighted according to period drawn down
(refer
to notes 16 and 17)
CTA Corporation Tax Act 2010
Dividend cover ratio Total dividends per share divided by Group specific EPS, expressed as a percentage
(refer
to note 3)
EPRA European Public Real Estate Association
EPRA cost ratio Ratio of overheads and operating expenses against gross rental income. Net overheads and
operating
expenses relate to all administrative and operating expenses including the share of
joint
ventures' overheads and operating expenses, net of any service fees, recharges or other
income
specifically intended to cover overhead and property expenses (refer to note 3)
EPRA EPS Recurring earnings from core operational activities excluding movements relating to
revaluation
of investment properties and interest rate swaps and the related tax effects, divided by
the
number of shares in issue (refer to note 3)
EPRA NAV Net assets divided by number of shares. Includes all property at market value but
excludes
the mark to market of interest rate swaps (refer to note 3)
EPRA NAV (cum-income) Net asset value before deduction of proposed dividend (refer to page 21)
EPRA NAV (ex-income) Net asset value after deduction of proposed dividend (refer to page 21)
EPRA NIY Annualised rental income based on the cash rents passing at the balance sheet date, less
non--recoverable
property operating expenses, divided by the market value of the property, increased with
(estimated)
purchasers' costs
EPRA triple net asset EPRA NAV including adjustments for the fair value of financial instruments, the fair
value (NNNAV) value
of debt and deferred taxes
EPS Earnings per share (refer to note 3)
ERV Estimated rental value
EU European Union
FCA Financial Conduct Authority
FPPP Financial Position and Prospects Procedures
FRI leases Full repairing and insuring leases
Full occupancy Full occupancy is determined as occupancy across the Company's operational portfolio of
properties
being no less than 97%. This is consistent with terminology used across the private
purpose--built
student accommodation market and the methodology applied by the Company since its IPO in
2013
GHG Greenhouse gas
GOSH Great Ormond Street Hospital
Group GCP Student Living plc and its subsidiaries
H&S Health and safety
HEI Higher education institution
IASB International Accounting Standards Board
IFRS International Financial Reporting Standards
IPO Initial public offering
KCL King's College London
LIBOR London interbank offered rate
Loan-to-value or LTV A measure of borrowings used by property investment companies calculated as borrowings,
net
of cash, as a proportion of property value (refer to notes 10 and 17)
LSE London School of Economics
MAR Market Abuse Regulation
MV Market value
NAV Net asset value (refer to note 3)
Net operating margin Gross profit expressed as a percentage of rental income
NIY Net initial yield
Non--PID Non--property income distribution
Ongoing charges ratio Annual percentage reduction in shareholder returns as a result of recurring operational
expenses
PID Property income distribution
pps Pence per share
QMUL Queen Mary University of London
RCF Redrawable credit facility
REIT Real estate investment trust
RHUL Royal Holloway, University of London
RICS Royal Institution of Chartered Surveyors
RLV Residual land value
RPI Retail price index
RNS Regulatory news service
Scape Scape Student Living Limited - Asset and Facilities Manager for Scape Shoreditch, Scape
Mile
End, Scape Greenwich, Scape Guildford, Scape Wembley, Scape Bloomsbury, Podium and The
Pad
SOAS School of Oriental and African Studies
Student rental growth Annual increase in direct let rental rates
Total shareholder return Share price growth with dividends deemed to be reinvested on the dividend payment date
UAL University of the Arts London
UCAS Universities and Colleges Admissions Service
UCH University College Hospital
UCL University College, London
UK Code UK Code of Corporate Governance, as published in April 2016
---------------------------- ----------------------------------------------------------------------------------------
ENDS
Neither the contents of GCP Student Living plc's website nor the contents of any website accessible from hyperlinks on the website (or any website) is incorporated into, or forms part of, this announcement.
This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact rns@lseg.com or visit www.rns.com.
END
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